Correlation Between STMicroelectronics and Chevron

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

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

Diversification Opportunities for STMicroelectronics and Chevron

0.45

Correlation Coefficient

STMicroelectronics  Chevron

Very weak diversification

The 3 months correlation between STMicroelectronics and Chevron is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron 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 Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Chevron go up and down completely randomly.

Pair Corralation between STMicroelectronics and Chevron

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Chevron. In addition to that, STMicroelectronics is 1.79 times more volatile than Chevron. It trades about -0.02 of its total potential returns per unit of risk. Chevron is currently generating about -0.01 per unit of volatility. If you would invest  9,467  in Chevron on December 4, 2024 and sell it today you would lose (163.00) from holding Chevron or give up 1.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.67%
Values	Daily Returns

STMicroelectronics NV  vs.  Chevron

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 somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chevron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chevron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Chevron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with STMicroelectronics and Chevron

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

The idea behind STMicroelectronics NV and Chevron 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 Global Correlations module to find global opportunities by holding instruments from different markets.