Correlation Between STMicroelectronics and Dominos Pizza

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

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

Diversification Opportunities for STMicroelectronics and Dominos Pizza

-0.45

Correlation Coefficient

STMicroelectronics  Dominos Pizza

Very good diversification

The 3 months correlation between STMicroelectronics and Dominos is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Dominos Pizza Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza Common 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 ADR are associated (or correlated) with Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza Common has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Dominos Pizza go up and down completely randomly.

Pair Corralation between STMicroelectronics and Dominos Pizza

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Dominos Pizza. In addition to that, STMicroelectronics is 1.39 times more volatile than Dominos Pizza Common. It trades about -0.06 of its total potential returns per unit of risk. Dominos Pizza Common is currently generating about -0.03 per unit of volatility. If you would invest  42,827  in Dominos Pizza Common on October 11, 2024 and sell it today you would lose (1,558) from holding Dominos Pizza Common or give up 3.64% of portfolio value over 90 days.

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

STMicroelectronics NV ADR  vs.  Dominos Pizza Common

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Dominos Pizza Common

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dominos Pizza Common has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dominos Pizza is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with STMicroelectronics and Dominos Pizza

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

The idea behind STMicroelectronics NV ADR and Dominos Pizza Common 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.