Correlation Between STMicroelectronics and Palantir Technologies

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Palantir 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 Palantir 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 Palantir Technologies, you can compare the effects of market volatilities on STMicroelectronics and Palantir 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 Palantir Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Palantir Technologies.

Diversification Opportunities for STMicroelectronics and Palantir Technologies

-0.24

Correlation Coefficient

STMicroelectronics  Palantir Technologies

Very good diversification

The 3 months correlation between STMicroelectronics and Palantir is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Palantir Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palantir 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 Palantir Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palantir Technologies has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Palantir Technologies go up and down completely randomly.

Pair Corralation between STMicroelectronics and Palantir Technologies

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Palantir Technologies. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 2.69 times less risky than Palantir Technologies. The stock trades about -0.27 of its potential returns per unit of risk. The Palantir Technologies is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  14,699  in Palantir Technologies on October 8, 2024 and sell it today you would earn a total of  1,817  from holding Palantir Technologies or generate 12.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

STMicroelectronics NV  vs.  Palantir Technologies

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.

Palantir Technologies

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Palantir Technologies are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Palantir Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Palantir Technologies

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

The idea behind STMicroelectronics NV and Palantir Technologies 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.