Correlation Between STMICROELECTRONICS and PNC Financial

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

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

Diversification Opportunities for STMICROELECTRONICS and PNC Financial

-0.55

Correlation Coefficient

STMICROELECTRONICS  PNC Financial

Excellent diversification

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

Pair Corralation between STMICROELECTRONICS and PNC Financial

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the PNC Financial. In addition to that, STMICROELECTRONICS is 1.18 times more volatile than The PNC Financial. It trades about -0.02 of its total potential returns per unit of risk. The PNC Financial is currently generating about 0.12 per unit of volatility. If you would invest  17,053  in The PNC Financial on October 23, 2024 and sell it today you would earn a total of  2,147  from holding The PNC Financial or generate 12.59% return on investment over 90 days.

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

STMICROELECTRONICS  vs.  The PNC Financial

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.

PNC Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The PNC Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PNC Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMICROELECTRONICS and PNC Financial

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

The idea behind STMICROELECTRONICS and The PNC Financial 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.