Correlation Between STMicroelectronics and Infineon Technologies

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Infineon Technologies 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 Infineon Technologies 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 Infineon Technologies AG, you can compare the effects of market volatilities on STMicroelectronics and Infineon Technologies 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 Infineon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Infineon Technologies.

Diversification Opportunities for STMicroelectronics and Infineon Technologies

0.25

Correlation Coefficient

STMicroelectronics  Infineon Technologies

Modest diversification

The 3 months correlation between STMicroelectronics and Infineon is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Infineon Technologies AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infineon Technologies 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 Infineon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infineon Technologies has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Infineon Technologies go up and down completely randomly.

Pair Corralation between STMicroelectronics and Infineon Technologies

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Infineon Technologies. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.16 times less risky than Infineon Technologies. The stock trades about -0.04 of its potential returns per unit of risk. The Infineon Technologies AG is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,415  in Infineon Technologies AG on October 8, 2024 and sell it today you would lose (196.00) from holding Infineon Technologies AG or give up 5.74% 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 ADR  vs.  Infineon Technologies AG

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 very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Infineon Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infineon Technologies AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Infineon Technologies 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 Infineon Technologies

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

The idea behind STMicroelectronics NV ADR and Infineon Technologies AG 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.