Correlation Between STMICROELECTRONICS and ITV Plc

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

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

Diversification Opportunities for STMICROELECTRONICS and ITV Plc

0.55

Correlation Coefficient

STMICROELECTRONICS  ITV Plc

Very weak diversification

The 3 months correlation between STMICROELECTRONICS and ITV is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and ITV plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITV plc 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 ITV Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITV plc has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and ITV Plc go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and ITV Plc

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the ITV Plc. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.18 times less risky than ITV Plc. The stock trades about -0.03 of its potential returns per unit of risk. The ITV plc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  76.00  in ITV plc on October 10, 2024 and sell it today you would earn a total of  10.00  from holding ITV plc or generate 13.16% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  ITV plc

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.

ITV plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITV plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ITV Plc 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 ITV Plc

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

The idea behind STMICROELECTRONICS and ITV plc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.