Correlation Between RF Acquisition and STMicroelectronics

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

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

Diversification Opportunities for RF Acquisition and STMicroelectronics

0.09

Correlation Coefficient

RF Acquisition  STMicroelectronics

Significant diversification

The 3 months correlation between RFAIR and STMicroelectronics is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding RF Acquisition Corp 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 RF Acquisition 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 RF Acquisition Corp 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 RF Acquisition i.e., RF Acquisition and STMicroelectronics go up and down completely randomly.

Pair Corralation between RF Acquisition and STMicroelectronics

Assuming the 90 days horizon RF Acquisition Corp is expected to generate 1.61 times more return on investment than STMicroelectronics. However, RF Acquisition is 1.61 times more volatile than STMicroelectronics NV ADR. It trades about 0.1 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.02 per unit of risk. If you would invest  5.92  in RF Acquisition Corp on December 24, 2024 and sell it today you would earn a total of  1.08  from holding RF Acquisition Corp or generate 18.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.33%
Values	Daily Returns

RF Acquisition Corp  vs.  STMicroelectronics NV ADR

RF Acquisition Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RF Acquisition Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward indicators, RF Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics NV ADR

Risk-Adjusted Performance

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 very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with RF Acquisition and STMicroelectronics

The main advantage of trading using opposite RF Acquisition and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RF Acquisition 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 RF Acquisition Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.