Correlation Between STMicroelectronics and Warner Music
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Warner Music 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 Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV and Warner Music Group, you can compare the effects of market volatilities on STMicroelectronics and Warner Music 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 Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Warner Music.
Diversification Opportunities for STMicroelectronics and Warner Music
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between STMicroelectronics and Warner is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group 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 Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Warner Music go up and down completely randomly.
Pair Corralation between STMicroelectronics and Warner Music
Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.12 times more return on investment than Warner Music. However, STMicroelectronics is 1.12 times more volatile than Warner Music Group. It trades about 0.16 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.09 per unit of risk. If you would invest 14,200 in STMicroelectronics NV on September 25, 2024 and sell it today you would earn a total of 950.00 from holding STMicroelectronics NV or generate 6.69% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
STMicroelectronics NV vs. Warner Music Group
Performance |
Timeline |
STMicroelectronics |
Warner Music Group |
STMicroelectronics and Warner Music Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with STMicroelectronics and Warner Music
The main advantage of trading using opposite STMicroelectronics and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, Warner Music 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 Warner Music will offset losses from the drop in Warner Music's long position.STMicroelectronics vs. Taiwan Semiconductor Manufacturing | STMicroelectronics vs. NVIDIA | STMicroelectronics vs. Texas Instruments Incorporated | STMicroelectronics vs. Qualcomm |
Warner Music vs. Technos SA | Warner Music vs. Charter Communications | Warner Music vs. STMicroelectronics NV | Warner Music vs. United States Steel |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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