Correlation Between STMICROELECTRONICS and KRISPY KREME

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

By analyzing existing cross correlation between STMICROELECTRONICS and KRISPY KREME DL 01, you can compare the effects of market volatilities on STMICROELECTRONICS and KRISPY KREME 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 KRISPY KREME. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and KRISPY KREME.

Diversification Opportunities for STMICROELECTRONICS and KRISPY KREME

-0.01

Correlation Coefficient

STMICROELECTRONICS  KRISPY KREME

Good diversification

The 3 months correlation between STMICROELECTRONICS and KRISPY is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and KRISPY KREME DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRISPY KREME DL 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 KRISPY KREME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRISPY KREME DL has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and KRISPY KREME go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and KRISPY KREME

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 1.55 times more return on investment than KRISPY KREME. However, STMICROELECTRONICS is 1.55 times more volatile than KRISPY KREME DL 01. It trades about -0.07 of its potential returns per unit of risk. KRISPY KREME DL 01 is currently generating about -0.64 per unit of risk. If you would invest  2,435  in STMICROELECTRONICS on September 27, 2024 and sell it today you would lose (72.00) from holding STMICROELECTRONICS or give up 2.96% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  KRISPY KREME DL 01

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 latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

KRISPY KREME DL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, KRISPY KREME 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 KRISPY KREME

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

The idea behind STMICROELECTRONICS and KRISPY KREME DL 01 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.