Correlation Between NI Holdings and STMicroelectronics

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

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

Diversification Opportunities for NI Holdings and STMicroelectronics

-0.43

Correlation Coefficient

NI Holdings  STMicroelectronics

Very good diversification

The 3 months correlation between NODK and STMicroelectronics is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings 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 NI Holdings 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 NI Holdings 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 NI Holdings i.e., NI Holdings and STMicroelectronics go up and down completely randomly.

Pair Corralation between NI Holdings and STMicroelectronics

Given the investment horizon of 90 days NI Holdings is expected to generate 0.71 times more return on investment than STMicroelectronics. However, NI Holdings is 1.4 times less risky than STMicroelectronics. It trades about 0.05 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.09 per unit of risk. If you would invest  1,343  in NI Holdings on October 2, 2024 and sell it today you would earn a total of  224.00  from holding NI Holdings or generate 16.68% return on investment over 90 days.

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

NI Holdings  vs.  STMicroelectronics NV ADR

NI Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NI Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, NI Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

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 inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NI Holdings and STMicroelectronics

The main advantage of trading using opposite NI Holdings and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NI Holdings 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 NI Holdings 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.