Correlation Between STMicroelectronics and Pan American

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

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

Diversification Opportunities for STMicroelectronics and Pan American

0.1

Correlation Coefficient

STMicroelectronics  Pan American

Average diversification

The 3 months correlation between STMicroelectronics and Pan is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver 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 Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Pan American go up and down completely randomly.

Pair Corralation between STMicroelectronics and Pan American

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.68 times more return on investment than Pan American. However, STMicroelectronics NV is 1.46 times less risky than Pan American. It trades about -0.25 of its potential returns per unit of risk. Pan American Silver is currently generating about -0.21 per unit of risk. If you would invest  2,541  in STMicroelectronics NV on October 9, 2024 and sell it today you would lose (184.00) from holding STMicroelectronics NV or give up 7.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.12%
Values	Daily Returns

STMicroelectronics NV  vs.  Pan American Silver

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.

Pan American Silver

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pan American may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with STMicroelectronics and Pan American

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

The idea behind STMicroelectronics NV and Pan American Silver 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.