Correlation Between STMicroelectronics and Alphawave

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Alphawave 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 Alphawave into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STMicroelectronics NV and Alphawave IP Group, you can compare the effects of market volatilities on STMicroelectronics and Alphawave 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 Alphawave. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Alphawave.

Diversification Opportunities for STMicroelectronics and Alphawave

-0.13

Correlation Coefficient

STMicroelectronics  Alphawave

Good diversification

The 3 months correlation between STMicroelectronics and Alphawave is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Alphawave IP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphawave IP Group 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 are associated (or correlated) with Alphawave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphawave IP Group has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Alphawave go up and down completely randomly.

Pair Corralation between STMicroelectronics and Alphawave

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.52 times more return on investment than Alphawave. However, STMicroelectronics NV is 1.93 times less risky than Alphawave. It trades about -0.02 of its potential returns per unit of risk. Alphawave IP Group is currently generating about -0.32 per unit of risk. If you would invest  2,457  in STMicroelectronics NV on September 24, 2024 and sell it today you would lose (62.00) from holding STMicroelectronics NV or give up 2.52% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Alphawave IP Group

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Alphawave IP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alphawave IP Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with STMicroelectronics and Alphawave

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

The idea behind STMicroelectronics NV and Alphawave IP Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.