Correlation Between STMicroelectronics and Aristocrat Leisure

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

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

Diversification Opportunities for STMicroelectronics and Aristocrat Leisure

-0.68

Correlation Coefficient

STMicroelectronics  Aristocrat Leisure

Excellent diversification

The 3 months correlation between STMicroelectronics and Aristocrat is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Aristocrat Leisure Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure 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 Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between STMicroelectronics and Aristocrat Leisure

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Aristocrat Leisure. In addition to that, STMicroelectronics is 1.24 times more volatile than Aristocrat Leisure Limited. It trades about -0.08 of its total potential returns per unit of risk. Aristocrat Leisure Limited is currently generating about 0.14 per unit of volatility. If you would invest  2,365  in Aristocrat Leisure Limited on October 8, 2024 and sell it today you would earn a total of  1,815  from holding Aristocrat Leisure Limited or generate 76.74% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Aristocrat Leisure Limited

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 nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Aristocrat Leisure

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Aristocrat Leisure reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Aristocrat Leisure

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

The idea behind STMicroelectronics NV and Aristocrat Leisure Limited 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.