Correlation Between Atlantic American and STMicroelectronics

Can any of the company-specific risk be diversified away by investing in both Atlantic American 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 Atlantic American and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Atlantic American and STMicroelectronics NV ADR, you can compare the effects of market volatilities on Atlantic American 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 Atlantic American with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Atlantic American and STMicroelectronics.

Diversification Opportunities for Atlantic American and STMicroelectronics

0.44

Correlation Coefficient

Atlantic American  STMicroelectronics

Very weak diversification

The 3 months correlation between Atlantic and STMicroelectronics is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Atlantic American and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and Atlantic American 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 Atlantic American 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 NV ADR has no effect on the direction of Atlantic American i.e., Atlantic American and STMicroelectronics go up and down completely randomly.

Pair Corralation between Atlantic American and STMicroelectronics

Given the investment horizon of 90 days Atlantic American is expected to under-perform the STMicroelectronics. In addition to that, Atlantic American is 2.08 times more volatile than STMicroelectronics NV ADR. It trades about -0.08 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.01 per unit of volatility. If you would invest  2,566  in STMicroelectronics NV ADR on September 25, 2024 and sell it today you would earn a total of  1.00  from holding STMicroelectronics NV ADR or generate 0.04% return on investment over 90 days.

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

Atlantic American  vs.  STMicroelectronics NV ADR

Atlantic American

Risk-Adjusted Performance

0 of 100

Very Weak

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

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Atlantic American and STMicroelectronics

The main advantage of trading using opposite Atlantic American and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Atlantic American 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' long position.

The idea behind Atlantic American and STMicroelectronics NV ADR 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.