Correlation Between STMicroelectronics and Tesla

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

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

Diversification Opportunities for STMicroelectronics and Tesla

-0.04

Correlation Coefficient

STMicroelectronics  Tesla

Good diversification

The 3 months correlation between STMicroelectronics and Tesla is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Tesla go up and down completely randomly.

Pair Corralation between STMicroelectronics and Tesla

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.65 times less risky than Tesla. The stock trades about -0.1 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,701  in Tesla Inc on September 27, 2024 and sell it today you would earn a total of  4,649  from holding Tesla Inc or generate 125.61% 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.  Tesla Inc

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.

Tesla Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Tesla

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

The idea behind STMicroelectronics NV and Tesla Inc 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.