Correlation Between STMicroelectronics and GigaMedia

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

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

Diversification Opportunities for STMicroelectronics and GigaMedia

-0.54

Correlation Coefficient

STMicroelectronics  GigaMedia

Excellent diversification

The 3 months correlation between STMicroelectronics and GigaMedia is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and GigaMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GigaMedia 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 GigaMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GigaMedia has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and GigaMedia go up and down completely randomly.

Pair Corralation between STMicroelectronics and GigaMedia

Assuming the 90 days horizon STMicroelectronics is expected to generate 13.57 times less return on investment than GigaMedia. But when comparing it to its historical volatility, STMicroelectronics NV is 1.02 times less risky than GigaMedia. It trades about 0.02 of its potential returns per unit of risk. GigaMedia is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  119.00  in GigaMedia on October 10, 2024 and sell it today you would earn a total of  38.00  from holding GigaMedia or generate 31.93% 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.  GigaMedia

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

GigaMedia

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GigaMedia are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GigaMedia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and GigaMedia

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

The idea behind STMicroelectronics NV and GigaMedia 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.