Correlation Between STMICROELECTRONICS and Freshpet

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

By analyzing existing cross correlation between STMICROELECTRONICS and Freshpet, you can compare the effects of market volatilities on STMICROELECTRONICS and Freshpet 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 Freshpet. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and Freshpet.

Diversification Opportunities for STMICROELECTRONICS and Freshpet

-0.6

Correlation Coefficient

STMICROELECTRONICS  Freshpet

Excellent diversification

The 3 months correlation between STMICROELECTRONICS and Freshpet is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Freshpet go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Freshpet

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 3.7 times less return on investment than Freshpet. In addition to that, STMICROELECTRONICS is 1.79 times more volatile than Freshpet. It trades about 0.06 of its total potential returns per unit of risk. Freshpet is currently generating about 0.39 per unit of volatility. If you would invest  13,950  in Freshpet on October 26, 2024 and sell it today you would earn a total of  1,280  from holding Freshpet or generate 9.18% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  Freshpet

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Freshpet

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Freshpet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMICROELECTRONICS and Freshpet

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

The idea behind STMICROELECTRONICS and Freshpet 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.