Correlation Between STMicroelectronics and NI Holdings

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

Diversification Opportunities for STMicroelectronics and NI Holdings

-0.43

Correlation Coefficient

STMicroelectronics  NI Holdings

Very good diversification

The 3 months correlation between STMicroelectronics and NODK is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and NI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NI Holdings 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 NI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NI Holdings has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and NI Holdings go up and down completely randomly.

Pair Corralation between STMicroelectronics and NI Holdings

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the NI Holdings. In addition to that, STMicroelectronics is 1.4 times more volatile than NI Holdings. It trades about -0.09 of its total potential returns per unit of risk. NI Holdings is currently generating about 0.05 per unit of volatility. If you would invest  1,343  in NI Holdings on October 2, 2024 and sell it today you would earn a total of  224.00  from holding NI Holdings or generate 16.68% 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.  NI Holdings

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 inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

NI Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NI Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, NI Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with STMicroelectronics and NI Holdings

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

The idea behind STMicroelectronics NV ADR and NI Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.