Correlation Between Estee Lauder and STMicroelectronics

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

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

Diversification Opportunities for Estee Lauder and STMicroelectronics

0.19

Correlation Coefficient

Estee Lauder  STMicroelectronics

Average diversification

The 3 months correlation between Estee and STMicroelectronics is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies 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 Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and STMicroelectronics go up and down completely randomly.

Pair Corralation between Estee Lauder and STMicroelectronics

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the STMicroelectronics. In addition to that, Estee Lauder is 1.01 times more volatile than STMicroelectronics NV ADR. It trades about -0.05 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.04 per unit of volatility. If you would invest  2,488  in STMicroelectronics NV ADR on December 30, 2024 and sell it today you would lose (273.00) from holding STMicroelectronics NV ADR or give up 10.97% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  STMicroelectronics NV ADR

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

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 Estee Lauder and STMicroelectronics

The main advantage of trading using opposite Estee Lauder and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.