Correlation Between SALESFORCE INC and STMicroelectronics

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

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

Diversification Opportunities for SALESFORCE INC and STMicroelectronics

-0.56

Correlation Coefficient

SALESFORCE INC  STMicroelectronics

Excellent diversification

The 3 months correlation between SALESFORCE and STMicroelectronics is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding SALESFORCE INC CDR and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and SALESFORCE INC 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 SALESFORCE INC CDR 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 SALESFORCE INC i.e., SALESFORCE INC and STMicroelectronics go up and down completely randomly.

Pair Corralation between SALESFORCE INC and STMicroelectronics

Assuming the 90 days trading horizon SALESFORCE INC CDR is expected to under-perform the STMicroelectronics. In addition to that, SALESFORCE INC is 1.05 times more volatile than STMicroelectronics NV. It trades about -0.33 of its total potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.04 per unit of volatility. If you would invest  2,459  in STMicroelectronics NV on October 6, 2024 and sell it today you would lose (39.00) from holding STMicroelectronics NV or give up 1.59% of portfolio value over 90 days.

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

SALESFORCE INC CDR  vs.  STMicroelectronics NV

SALESFORCE INC CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SALESFORCE INC CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SALESFORCE INC reported solid returns over the last few months and may actually be approaching a breakup point.

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 nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SALESFORCE INC and STMicroelectronics

The main advantage of trading using opposite SALESFORCE INC and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SALESFORCE INC 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 SALESFORCE INC CDR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.