Correlation Between Pekin Life and STMicroelectronics

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

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

Diversification Opportunities for Pekin Life and STMicroelectronics

-0.66

Correlation Coefficient

Pekin Life  STMicroelectronics

Excellent diversification

The 3 months correlation between Pekin and STMicroelectronics is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Pekin Life Insurance 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 Pekin Life 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 Pekin Life Insurance 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 Pekin Life i.e., Pekin Life and STMicroelectronics go up and down completely randomly.

Pair Corralation between Pekin Life and STMicroelectronics

Given the investment horizon of 90 days Pekin Life Insurance is expected to generate 0.06 times more return on investment than STMicroelectronics. However, Pekin Life Insurance is 17.89 times less risky than STMicroelectronics. It trades about 0.07 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  1,150  in Pekin Life Insurance on October 2, 2024 and sell it today you would earn a total of  25.00  from holding Pekin Life Insurance or generate 2.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.56%
Values	Daily Returns

Pekin Life Insurance  vs.  STMicroelectronics NV ADR

Pekin Life Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pekin Life Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Pekin Life is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the 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 Pekin Life and STMicroelectronics

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

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.