Correlation Between Apple and STMICROELECTRONICS

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

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

Diversification Opportunities for Apple and STMICROELECTRONICS

0.3

Correlation Coefficient

Apple  STMICROELECTRONICS

Weak diversification

The 3 months correlation between Apple and STMICROELECTRONICS is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Apple 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 Apple Inc 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 Apple i.e., Apple and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Apple and STMICROELECTRONICS

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.54 times more return on investment than STMICROELECTRONICS. However, Apple Inc is 1.86 times less risky than STMICROELECTRONICS. It trades about 0.01 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.02 per unit of risk. If you would invest  23,040  in Apple Inc on December 3, 2024 and sell it today you would lose (10.00) from holding Apple Inc or give up 0.04% of portfolio value over 90 days.

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

Apple Inc  vs.  STMICROELECTRONICS

Apple Inc

Risk-Adjusted Performance

Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Apple is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 Apple and STMICROELECTRONICS

The main advantage of trading using opposite Apple and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.