Correlation Between STMicroelectronics and Cirrus Logic

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

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

Diversification Opportunities for STMicroelectronics and Cirrus Logic

0.72

Correlation Coefficient

STMicroelectronics  Cirrus Logic

Poor diversification

The 3 months correlation between STMicroelectronics and Cirrus is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Cirrus Logic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cirrus Logic 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 Cirrus Logic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cirrus Logic has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Cirrus Logic go up and down completely randomly.

Pair Corralation between STMicroelectronics and Cirrus Logic

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 2.0 times more return on investment than Cirrus Logic. However, STMicroelectronics is 2.0 times more volatile than Cirrus Logic. It trades about -0.01 of its potential returns per unit of risk. Cirrus Logic is currently generating about -0.1 per unit of risk. If you would invest  2,787  in STMicroelectronics NV on October 10, 2024 and sell it today you would lose (186.00) from holding STMicroelectronics NV or give up 6.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

STMicroelectronics NV  vs.  Cirrus Logic

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 nearly stable technical and fundamental indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cirrus Logic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cirrus Logic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with STMicroelectronics and Cirrus Logic

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

The idea behind STMicroelectronics NV and Cirrus Logic 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.