Correlation Between STMicroelectronics and Inter Parfums

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

Diversification Opportunities for STMicroelectronics and Inter Parfums

-0.52

Correlation Coefficient

STMicroelectronics  Inter Parfums

Excellent diversification

The 3 months correlation between STMicroelectronics and Inter is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums 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 Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Inter Parfums go up and down completely randomly.

Pair Corralation between STMicroelectronics and Inter Parfums

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Inter Parfums. In addition to that, STMicroelectronics is 1.24 times more volatile than Inter Parfums. It trades about -0.03 of its total potential returns per unit of risk. Inter Parfums is currently generating about 0.14 per unit of volatility. If you would invest  11,913  in Inter Parfums on September 15, 2024 and sell it today you would earn a total of  1,771  from holding Inter Parfums or generate 14.87% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  Inter Parfums

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.

Inter Parfums

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Inter Parfums reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Inter Parfums

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

The idea behind STMicroelectronics NV ADR and Inter Parfums 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.