Correlation Between Air France and STMicroelectronics

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

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

Diversification Opportunities for Air France and STMicroelectronics

-0.21

Correlation Coefficient

Air France  STMicroelectronics

Very good diversification

The 3 months correlation between Air and STMicroelectronics is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM SA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Air France 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 Air France KLM SA 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 Air France i.e., Air France and STMicroelectronics go up and down completely randomly.

Pair Corralation between Air France and STMicroelectronics

Assuming the 90 days horizon Air France KLM SA is expected to generate 1.57 times more return on investment than STMicroelectronics. However, Air France is 1.57 times more volatile than STMicroelectronics NV. It trades about 0.08 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.05 per unit of risk. If you would invest  809.00  in Air France KLM SA on December 26, 2024 and sell it today you would earn a total of  157.00  from holding Air France KLM SA or generate 19.41% return on investment over 90 days.

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

Air France KLM SA  vs.  STMicroelectronics NV

Air France KLM

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air France sustained solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Air France and STMicroelectronics

The main advantage of trading using opposite Air France and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air France 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 Air France KLM SA and STMicroelectronics NV 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.