Correlation Between STMicroelectronics and FIREWEED METALS

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

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

Diversification Opportunities for STMicroelectronics and FIREWEED METALS

0.37

Correlation Coefficient

STMicroelectronics  FIREWEED METALS

Weak diversification

The 3 months correlation between STMicroelectronics and FIREWEED is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and FIREWEED METALS P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIREWEED METALS P 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 FIREWEED METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIREWEED METALS P has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and FIREWEED METALS go up and down completely randomly.

Pair Corralation between STMicroelectronics and FIREWEED METALS

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the FIREWEED METALS. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.14 times less risky than FIREWEED METALS. The stock trades about -0.03 of its potential returns per unit of risk. The FIREWEED METALS P is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  98.00  in FIREWEED METALS P on October 24, 2024 and sell it today you would lose (2.00) from holding FIREWEED METALS P or give up 2.04% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  FIREWEED METALS P

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.

FIREWEED METALS P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FIREWEED METALS P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FIREWEED METALS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with STMicroelectronics and FIREWEED METALS

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

The idea behind STMicroelectronics NV and FIREWEED METALS P 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..