Correlation Between STMICROELECTRONICS and Hollywood Bowl

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

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

Diversification Opportunities for STMICROELECTRONICS and Hollywood Bowl

0.15

Correlation Coefficient

STMICROELECTRONICS  Hollywood Bowl

Average diversification

The 3 months correlation between STMICROELECTRONICS and Hollywood is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Hollywood Bowl Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hollywood Bowl Group and STMICROELECTRONICS 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 STMICROELECTRONICS are associated (or correlated) with Hollywood Bowl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hollywood Bowl Group has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Hollywood Bowl go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Hollywood Bowl

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 0.52 times more return on investment than Hollywood Bowl. However, STMICROELECTRONICS is 1.91 times less risky than Hollywood Bowl. It trades about -0.29 of its potential returns per unit of risk. Hollywood Bowl Group is currently generating about -0.29 per unit of risk. If you would invest  2,544  in STMICROELECTRONICS on October 8, 2024 and sell it today you would lose (172.00) from holding STMICROELECTRONICS or give up 6.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

STMICROELECTRONICS  vs.  Hollywood Bowl Group

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Hollywood Bowl Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hollywood Bowl Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hollywood Bowl is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with STMICROELECTRONICS and Hollywood Bowl

The main advantage of trading using opposite STMICROELECTRONICS and Hollywood Bowl positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, Hollywood Bowl 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 Hollywood Bowl will offset losses from the drop in Hollywood Bowl's long position.

The idea behind STMICROELECTRONICS and Hollywood Bowl Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.