Correlation Between STMicroelectronics and RF Acquisition

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

Diversification Opportunities for STMicroelectronics and RF Acquisition

0.54

Correlation Coefficient

STMicroelectronics  RF Acquisition

Very weak diversification

The 3 months correlation between STMicroelectronics and RFAIR is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and RF Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RF Acquisition Corp 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 RF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RF Acquisition Corp has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and RF Acquisition go up and down completely randomly.

Pair Corralation between STMicroelectronics and RF Acquisition

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the RF Acquisition. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 2.43 times less risky than RF Acquisition. The stock trades about -0.07 of its potential returns per unit of risk. The RF Acquisition Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6.27  in RF Acquisition Corp on October 12, 2024 and sell it today you would lose (0.66) from holding RF Acquisition Corp or give up 10.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.97%
Values	Daily Returns

STMicroelectronics NV ADR  vs.  RF Acquisition Corp

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.

RF Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RF Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, RF Acquisition 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 RF Acquisition

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

The idea behind STMicroelectronics NV ADR and RF Acquisition Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.