Correlation Between STMicroelectronics and LIFENET INSURANCE

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

By analyzing existing cross correlation between STMicroelectronics NV and LIFENET INSURANCE CO, you can compare the effects of market volatilities on STMicroelectronics and LIFENET INSURANCE 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 LIFENET INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and LIFENET INSURANCE.

Diversification Opportunities for STMicroelectronics and LIFENET INSURANCE

-0.55

Correlation Coefficient

STMicroelectronics  LIFENET INSURANCE

Excellent diversification

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

Pair Corralation between STMicroelectronics and LIFENET INSURANCE

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the LIFENET INSURANCE. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.11 times less risky than LIFENET INSURANCE. The stock trades about -0.11 of its potential returns per unit of risk. The LIFENET INSURANCE CO is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,050  in LIFENET INSURANCE CO on September 3, 2024 and sell it today you would earn a total of  180.00  from holding LIFENET INSURANCE CO or generate 17.14% return on investment over 90 days.

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

STMicroelectronics NV  vs.  LIFENET INSURANCE CO

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LIFENET INSURANCE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LIFENET INSURANCE CO are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, LIFENET INSURANCE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and LIFENET INSURANCE

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

The idea behind STMicroelectronics NV and LIFENET INSURANCE CO 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.