Correlation Between STMicroelectronics and Plano Plano

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

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

Diversification Opportunities for STMicroelectronics and Plano Plano

-0.34

Correlation Coefficient

STMicroelectronics  Plano Plano

Very good diversification

The 3 months correlation between STMicroelectronics and Plano is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Plano Plano Desenvolvimento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plano Plano Desenvol 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 Plano Plano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plano Plano Desenvol has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Plano Plano go up and down completely randomly.

Pair Corralation between STMicroelectronics and Plano Plano

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 0.8 times more return on investment than Plano Plano. However, STMicroelectronics NV is 1.25 times less risky than Plano Plano. It trades about -0.02 of its potential returns per unit of risk. Plano Plano Desenvolvimento is currently generating about -0.02 per unit of risk. If you would invest  15,926  in STMicroelectronics NV on December 4, 2024 and sell it today you would lose (881.00) from holding STMicroelectronics NV or give up 5.53% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Plano Plano Desenvolvimento

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.

Plano Plano Desenvol

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plano Plano Desenvolvimento has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Plano Plano is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STMicroelectronics and Plano Plano

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

The idea behind STMicroelectronics NV and Plano Plano Desenvolvimento 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.