Correlation Between STMicroelectronics and Iron Mountain

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

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

Diversification Opportunities for STMicroelectronics and Iron Mountain

0.21

Correlation Coefficient

STMicroelectronics  Iron Mountain

Modest diversification

The 3 months correlation between STMicroelectronics and Iron is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Iron Mountain Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Mountain 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 Iron Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Mountain has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Iron Mountain go up and down completely randomly.

Pair Corralation between STMicroelectronics and Iron Mountain

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 0.76 times more return on investment than Iron Mountain. However, STMicroelectronics NV is 1.31 times less risky than Iron Mountain. It trades about -0.15 of its potential returns per unit of risk. Iron Mountain Incorporated is currently generating about -0.44 per unit of risk. If you would invest  15,739  in STMicroelectronics NV on October 1, 2024 and sell it today you would lose (589.00) from holding STMicroelectronics NV or give up 3.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

STMicroelectronics NV  vs.  Iron Mountain 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 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.

Iron Mountain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Mountain Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Iron Mountain 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 Iron Mountain

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

The idea behind STMicroelectronics NV and Iron Mountain 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.