Correlation Between STMICROELECTRONICS and GOODYEAR T

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

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

Diversification Opportunities for STMICROELECTRONICS and GOODYEAR T

0.51

Correlation Coefficient

STMICROELECTRONICS  GOODYEAR T

Very weak diversification

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

Pair Corralation between STMICROELECTRONICS and GOODYEAR T

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the GOODYEAR T. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.34 times less risky than GOODYEAR T. The stock trades about -0.03 of its potential returns per unit of risk. The GOODYEAR T RUBBER is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  841.00  in GOODYEAR T RUBBER on December 27, 2024 and sell it today you would earn a total of  35.00  from holding GOODYEAR T RUBBER or generate 4.16% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  GOODYEAR T RUBBER

STMICROELECTRONICS

Risk-Adjusted Performance

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

GOODYEAR T RUBBER

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GOODYEAR T RUBBER are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GOODYEAR T may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with STMICROELECTRONICS and GOODYEAR T

The main advantage of trading using opposite STMICROELECTRONICS and GOODYEAR T positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, GOODYEAR T 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 GOODYEAR T will offset losses from the drop in GOODYEAR T's long position.

The idea behind STMICROELECTRONICS and GOODYEAR T RUBBER 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.