Correlation Between Deutsche Bank and STMicroelectronics

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

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

Diversification Opportunities for Deutsche Bank and STMicroelectronics

0.35

Correlation Coefficient

Deutsche Bank  STMicroelectronics

Weak diversification

The 3 months correlation between Deutsche and STMicroelectronics is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Bank Aktiengesellscha and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Deutsche Bank 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 Deutsche Bank Aktiengesellschaft 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 Deutsche Bank i.e., Deutsche Bank and STMicroelectronics go up and down completely randomly.

Pair Corralation between Deutsche Bank and STMicroelectronics

Assuming the 90 days trading horizon Deutsche Bank Aktiengesellschaft is expected to generate 0.99 times more return on investment than STMicroelectronics. However, Deutsche Bank Aktiengesellschaft is 1.01 times less risky than STMicroelectronics. It trades about 0.1 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.08 per unit of risk. If you would invest  9,767  in Deutsche Bank Aktiengesellschaft on September 27, 2024 and sell it today you would earn a total of  703.00  from holding Deutsche Bank Aktiengesellschaft or generate 7.2% return on investment over 90 days.

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

Deutsche Bank Aktiengesellscha  vs.  STMicroelectronics NV

Deutsche Bank Aktien

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Bank Aktiengesellschaft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Deutsche Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deutsche Bank and STMicroelectronics

The main advantage of trading using opposite Deutsche Bank and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Bank 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 Deutsche Bank Aktiengesellschaft 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.