Correlation Between Great Portland and STMICROELECTRONICS

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

By analyzing existing cross correlation between Great Portland Estates and STMICROELECTRONICS, you can compare the effects of market volatilities on Great Portland 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 Great Portland with a short position of STMICROELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Portland and STMICROELECTRONICS.

Diversification Opportunities for Great Portland and STMICROELECTRONICS

0.82

Correlation Coefficient

Great Portland  STMICROELECTRONICS

Very poor diversification

The 3 months correlation between Great and STMICROELECTRONICS is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Great Portland Estates and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Great Portland 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 Great Portland Estates 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 Great Portland i.e., Great Portland and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Great Portland and STMICROELECTRONICS

Assuming the 90 days trading horizon Great Portland Estates is expected to under-perform the STMICROELECTRONICS. But the stock apears to be less risky and, when comparing its historical volatility, Great Portland Estates is 1.35 times less risky than STMICROELECTRONICS. The stock trades about -0.18 of its potential returns per unit of risk. The STMICROELECTRONICS is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,538  in STMICROELECTRONICS on October 9, 2024 and sell it today you would lose (163.00) from holding STMICROELECTRONICS or give up 6.42% of portfolio value over 90 days.

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

Great Portland Estates  vs.  STMICROELECTRONICS

Great Portland Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Portland Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Great Portland and STMICROELECTRONICS

The main advantage of trading using opposite Great Portland and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Portland 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's long position.

The idea behind Great Portland Estates and STMICROELECTRONICS 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.