Correlation Between STMicroelectronics and Diodes Incorporated

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

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

Diversification Opportunities for STMicroelectronics and Diodes Incorporated

0.25

Correlation Coefficient

STMicroelectronics  Diodes Incorporated

Modest diversification

The 3 months correlation between STMicroelectronics and Diodes is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated 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 Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Diodes Incorporated go up and down completely randomly.

Pair Corralation between STMicroelectronics and Diodes Incorporated

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Diodes Incorporated. In addition to that, STMicroelectronics is 1.14 times more volatile than Diodes Incorporated. It trades about -0.06 of its total potential returns per unit of risk. Diodes Incorporated is currently generating about 0.03 per unit of volatility. If you would invest  5,932  in Diodes Incorporated on September 23, 2024 and sell it today you would earn a total of  224.00  from holding Diodes Incorporated or generate 3.78% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Diodes Incorporated

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 weak performance in the last few months, the Stock's technical and fundamental 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.

Diodes Incorporated

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with STMicroelectronics and Diodes Incorporated

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

The idea behind STMicroelectronics NV and Diodes Incorporated 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.