Correlation Between STMicroelectronics and Palomar Holdings

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

Diversification Opportunities for STMicroelectronics and Palomar Holdings

-0.69

Correlation Coefficient

STMicroelectronics  Palomar Holdings

Excellent diversification

The 3 months correlation between STMicroelectronics and Palomar is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Palomar Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palomar 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 Palomar Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palomar Holdings has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Palomar Holdings go up and down completely randomly.

Pair Corralation between STMicroelectronics and Palomar Holdings

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Palomar Holdings. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.07 times less risky than Palomar Holdings. The stock trades about -0.04 of its potential returns per unit of risk. The Palomar Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,987  in Palomar Holdings on October 14, 2024 and sell it today you would earn a total of  5,164  from holding Palomar Holdings or generate 103.55% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  Palomar 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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Palomar Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Palomar Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Palomar Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with STMicroelectronics and Palomar Holdings

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

The idea behind STMicroelectronics NV ADR and Palomar 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.