Correlation Between STMicroelectronics and Infineon Technologies

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

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

Diversification Opportunities for STMicroelectronics and Infineon Technologies

0.14

Correlation Coefficient

STMicroelectronics  Infineon Technologies

Average diversification

The 3 months correlation between STMicroelectronics and Infineon is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Infineon Technologies AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infineon Technologies 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 Infineon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infineon Technologies has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Infineon Technologies go up and down completely randomly.

Pair Corralation between STMicroelectronics and Infineon Technologies

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Infineon Technologies. In addition to that, STMicroelectronics is 1.5 times more volatile than Infineon Technologies AG. It trades about -0.02 of its total potential returns per unit of risk. Infineon Technologies AG is currently generating about 0.07 per unit of volatility. If you would invest  3,300  in Infineon Technologies AG on December 26, 2024 and sell it today you would earn a total of  340.00  from holding Infineon Technologies AG or generate 10.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

STMicroelectronics NV  vs.  Infineon Technologies AG

STMicroelectronics

Risk-Adjusted Performance

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.

Infineon Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Infineon Technologies AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Infineon Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Infineon Technologies

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

The idea behind STMicroelectronics NV and Infineon Technologies AG 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.