Correlation Between STMicroelectronics and ABN AMRO

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

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

Diversification Opportunities for STMicroelectronics and ABN AMRO

0.21

Correlation Coefficient

STMicroelectronics  ABN AMRO

Modest diversification

The 3 months correlation between STMicroelectronics and ABN is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and ABN AMRO Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABN AMRO Bank 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 ABN AMRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABN AMRO Bank has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and ABN AMRO go up and down completely randomly.

Pair Corralation between STMicroelectronics and ABN AMRO

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the ABN AMRO. In addition to that, STMicroelectronics is 1.35 times more volatile than ABN AMRO Bank. It trades about -0.03 of its total potential returns per unit of risk. ABN AMRO Bank is currently generating about 0.03 per unit of volatility. If you would invest  1,215  in ABN AMRO Bank on October 9, 2024 and sell it today you would earn a total of  294.00  from holding ABN AMRO Bank or generate 24.2% return on investment over 90 days.

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

STMicroelectronics NV  vs.  ABN AMRO Bank

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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ABN AMRO Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABN AMRO Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ABN AMRO is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STMicroelectronics and ABN AMRO

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

The idea behind STMicroelectronics NV and ABN AMRO Bank 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.