Correlation Between STMICROELECTRONICS and Charter Communications

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

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

Diversification Opportunities for STMICROELECTRONICS and Charter Communications

-0.74

Correlation Coefficient

STMICROELECTRONICS  Charter Communications

Pay attention - limited upside

The 3 months correlation between STMICROELECTRONICS and Charter is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Charter Communications go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Charter Communications

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.63 times less risky than Charter Communications. The stock trades about -0.02 of its potential returns per unit of risk. The Charter Communications is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  30,865  in Charter Communications on September 14, 2024 and sell it today you would earn a total of  6,375  from holding Charter Communications or generate 20.65% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  Charter Communications

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.

Charter Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMICROELECTRONICS and Charter Communications

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

The idea behind STMICROELECTRONICS and Charter Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.