Correlation Between STMicroelectronics and Ryanair Holdings

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

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

Diversification Opportunities for STMicroelectronics and Ryanair Holdings

0.01

Correlation Coefficient

STMicroelectronics  Ryanair Holdings

Significant diversification

The 3 months correlation between STMicroelectronics and Ryanair is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Ryanair Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ryanair Holdings plc 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 Ryanair Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ryanair Holdings plc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Ryanair Holdings go up and down completely randomly.

Pair Corralation between STMicroelectronics and Ryanair Holdings

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Ryanair Holdings. In addition to that, STMicroelectronics is 1.23 times more volatile than Ryanair Holdings plc. It trades about -0.05 of its total potential returns per unit of risk. Ryanair Holdings plc is currently generating about 0.04 per unit of volatility. If you would invest  2,938  in Ryanair Holdings plc on October 8, 2024 and sell it today you would earn a total of  416.00  from holding Ryanair Holdings plc or generate 14.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.62%
Values	Daily Returns

STMicroelectronics NV  vs.  Ryanair Holdings plc

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.

Ryanair Holdings plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ryanair Holdings plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ryanair Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Ryanair Holdings

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

The idea behind STMicroelectronics NV and Ryanair Holdings plc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.