Correlation Between Bank of Georgia Group PLC and STMicroelectronics

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

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

Diversification Opportunities for Bank of Georgia Group PLC and STMicroelectronics

0.09

Correlation Coefficient

Bank of Georgia Group PLC  STMicroelectronics

Significant diversification

The 3 months correlation between Bank and STMicroelectronics is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Georgia and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Bank of Georgia Group PLC 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 Bank of Georgia 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 Bank of Georgia Group PLC i.e., Bank of Georgia Group PLC and STMicroelectronics go up and down completely randomly.

Pair Corralation between Bank of Georgia Group PLC and STMicroelectronics

Assuming the 90 days trading horizon Bank of Georgia is expected to generate 0.66 times more return on investment than STMicroelectronics. However, Bank of Georgia is 1.51 times less risky than STMicroelectronics. It trades about 0.12 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.01 per unit of risk. If you would invest  466,500  in Bank of Georgia on December 3, 2024 and sell it today you would earn a total of  62,500  from holding Bank of Georgia or generate 13.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Bank of Georgia  vs.  STMicroelectronics NV

Bank of Georgia Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Georgia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Bank of Georgia Group PLC unveiled 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. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of Georgia Group PLC and STMicroelectronics

The main advantage of trading using opposite Bank of Georgia Group PLC and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Georgia Group PLC 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 Bank of Georgia 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.