Correlation Between QUALCOMM Incorporated and STMicroelectronics

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

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

Diversification Opportunities for QUALCOMM Incorporated and STMicroelectronics

0.43

Correlation Coefficient

QUALCOMM Incorporated  STMicroelectronics

Very weak diversification

The 3 months correlation between QUALCOMM and STMicroelectronics is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding QUALCOMM Incorporated and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and QUALCOMM Incorporated 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 QUALCOMM Incorporated 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 QUALCOMM Incorporated i.e., QUALCOMM Incorporated and STMicroelectronics go up and down completely randomly.

Pair Corralation between QUALCOMM Incorporated and STMicroelectronics

Assuming the 90 days horizon QUALCOMM Incorporated is expected to generate 1.53 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, QUALCOMM Incorporated is 1.03 times less risky than STMicroelectronics. It trades about 0.03 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,377  in STMicroelectronics NV on September 25, 2024 and sell it today you would earn a total of  38.00  from holding STMicroelectronics NV or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

QUALCOMM Incorporated  vs.  STMicroelectronics NV

QUALCOMM Incorporated

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in QUALCOMM Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, QUALCOMM Incorporated is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 QUALCOMM Incorporated and STMicroelectronics

The main advantage of trading using opposite QUALCOMM Incorporated and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if QUALCOMM Incorporated 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 QUALCOMM Incorporated 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.