Correlation Between STMICROELECTRONICS and Consolidated Communications

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

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

Diversification Opportunities for STMICROELECTRONICS and Consolidated Communications

-0.51

Correlation Coefficient

STMICROELECTRONICS  Consolidated Communications

Excellent diversification

The 3 months correlation between STMICROELECTRONICS and Consolidated is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Consolidated Communications Ho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Communications 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 Consolidated Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Communications has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Consolidated Communications go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Consolidated Communications

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Consolidated Communications. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.25 times less risky than Consolidated Communications. The stock trades about -0.03 of its potential returns per unit of risk. The Consolidated Communications Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  386.00  in Consolidated Communications Holdings on October 15, 2024 and sell it today you would earn a total of  62.00  from holding Consolidated Communications Holdings or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.6%
Values	Daily Returns

STMICROELECTRONICS  vs.  Consolidated Communications Ho

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.

Consolidated Communications

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Consolidated Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Consolidated Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with STMICROELECTRONICS and Consolidated Communications

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

The idea behind STMICROELECTRONICS and Consolidated Communications Holdings 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.