Correlation Between STMicroelectronics and International Consolidated

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

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

Diversification Opportunities for STMicroelectronics and International Consolidated

-0.35

Correlation Coefficient

STMicroelectronics  International Consolidated

Very good diversification

The 3 months correlation between STMicroelectronics and International is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated 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 International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and International Consolidated go up and down completely randomly.

Pair Corralation between STMicroelectronics and International Consolidated

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the International Consolidated. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.11 times less risky than International Consolidated. The stock trades about -0.02 of its potential returns per unit of risk. The International Consolidated Airlines is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  255.00  in International Consolidated Airlines on October 6, 2024 and sell it today you would earn a total of  108.00  from holding International Consolidated Airlines or generate 42.35% return on investment over 90 days.

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

STMicroelectronics NV  vs.  International Consolidated Air

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.

International Consolidated

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, International Consolidated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and International Consolidated

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

The idea behind STMicroelectronics NV and International Consolidated Airlines 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 Global Correlations module to find global opportunities by holding instruments from different markets.