Correlation Between International Consolidated and STMicroelectronics

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

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

Diversification Opportunities for International Consolidated and STMicroelectronics

-0.51

Correlation Coefficient

International Consolidated  STMicroelectronics

Excellent diversification

The 3 months correlation between International and STMicroelectronics is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and STMicroelectronics go up and down completely randomly.

Pair Corralation between International Consolidated and STMicroelectronics

Assuming the 90 days trading horizon International Consolidated Airlines is expected to generate 0.82 times more return on investment than STMicroelectronics. However, International Consolidated Airlines is 1.22 times less risky than STMicroelectronics. It trades about 0.32 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.0 per unit of risk. If you would invest  19,555  in International Consolidated Airlines on September 12, 2024 and sell it today you would earn a total of  8,645  from holding International Consolidated Airlines or generate 44.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

International Consolidated Air  vs.  STMicroelectronics NV

International Consolidated

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, International Consolidated exhibited 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. 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 International Consolidated and STMicroelectronics

The main advantage of trading using opposite International Consolidated and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines 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 Global Correlations module to find global opportunities by holding instruments from different markets.