Correlation Between Gamma Communications and STMICROELECTRONICS

Can any of the company-specific risk be diversified away by investing in both Gamma Communications and STMICROELECTRONICS at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gamma Communications and STMICROELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gamma Communications plc and STMICROELECTRONICS, you can compare the effects of market volatilities on Gamma Communications and STMICROELECTRONICS and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gamma Communications with a short position of STMICROELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gamma Communications and STMICROELECTRONICS.

Diversification Opportunities for Gamma Communications and STMICROELECTRONICS

0.29

Correlation Coefficient

Gamma Communications  STMICROELECTRONICS

Modest diversification

The 3 months correlation between Gamma and STMICROELECTRONICS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications plc and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Gamma Communications is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Gamma Communications plc are associated (or correlated) with STMICROELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMICROELECTRONICS has no effect on the direction of Gamma Communications i.e., Gamma Communications and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Gamma Communications and STMICROELECTRONICS

Assuming the 90 days horizon Gamma Communications plc is expected to under-perform the STMICROELECTRONICS. But the stock apears to be less risky and, when comparing its historical volatility, Gamma Communications plc is 1.51 times less risky than STMICROELECTRONICS. The stock trades about -0.18 of its potential returns per unit of risk. The STMICROELECTRONICS is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,413  in STMICROELECTRONICS on December 4, 2024 and sell it today you would lose (23.00) from holding STMICROELECTRONICS or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Gamma Communications plc  vs.  STMICROELECTRONICS

Gamma Communications plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gamma Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

STMICROELECTRONICS

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gamma Communications and STMICROELECTRONICS

The main advantage of trading using opposite Gamma Communications and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gamma Communications position performs unexpectedly, STMICROELECTRONICS can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in STMICROELECTRONICS will offset losses from the drop in STMICROELECTRONICS's long position.

The idea behind Gamma Communications plc and STMICROELECTRONICS pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.