Correlation Between Fevertree Drinks and STMicroelectronics

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

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

Diversification Opportunities for Fevertree Drinks and STMicroelectronics

-0.34

Correlation Coefficient

Fevertree Drinks  STMicroelectronics

Very good diversification

The 3 months correlation between Fevertree and STMicroelectronics is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Fevertree Drinks 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 Fevertree Drinks Plc 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 Fevertree Drinks i.e., Fevertree Drinks and STMicroelectronics go up and down completely randomly.

Pair Corralation between Fevertree Drinks and STMicroelectronics

Assuming the 90 days trading horizon Fevertree Drinks Plc is expected to under-perform the STMicroelectronics. In addition to that, Fevertree Drinks is 1.15 times more volatile than STMicroelectronics NV. It trades about -0.01 of its total potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.0 per unit of volatility. If you would invest  2,444  in STMicroelectronics NV on December 1, 2024 and sell it today you would lose (75.00) from holding STMicroelectronics NV or give up 3.07% of portfolio value over 90 days.

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

Fevertree Drinks Plc  vs.  STMicroelectronics NV

Fevertree Drinks Plc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fevertree Drinks and STMicroelectronics

The main advantage of trading using opposite Fevertree Drinks and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks 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 Fevertree Drinks Plc 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.