Correlation Between STMicroelectronics and TERADYNE

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

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

Diversification Opportunities for STMicroelectronics and TERADYNE

0.48

Correlation Coefficient

STMicroelectronics  TERADYNE

Very weak diversification

The 3 months correlation between STMicroelectronics and TERADYNE is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and TERADYNE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TERADYNE 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 TERADYNE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TERADYNE has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and TERADYNE go up and down completely randomly.

Pair Corralation between STMicroelectronics and TERADYNE

Assuming the 90 days horizon STMicroelectronics is expected to generate 18.93 times less return on investment than TERADYNE. But when comparing it to its historical volatility, STMicroelectronics NV is 1.29 times less risky than TERADYNE. It trades about 0.03 of its potential returns per unit of risk. TERADYNE is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  10,010  in TERADYNE on September 23, 2024 and sell it today you would earn a total of  1,944  from holding TERADYNE or generate 19.42% return on investment over 90 days.

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

STMicroelectronics NV  vs.  TERADYNE

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.

TERADYNE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TERADYNE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, TERADYNE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with STMicroelectronics and TERADYNE

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

The idea behind STMicroelectronics NV and TERADYNE 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.