Correlation Between STMicroelectronics and Air France

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

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

Diversification Opportunities for STMicroelectronics and Air France

-0.21

Correlation Coefficient

STMicroelectronics  Air France

Very good diversification

The 3 months correlation between STMicroelectronics and Air is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM 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 Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Air France go up and down completely randomly.

Pair Corralation between STMicroelectronics and Air France

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Air France. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.57 times less risky than Air France. The stock trades about -0.05 of its potential returns per unit of risk. The Air France KLM SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  809.00  in Air France KLM SA on December 26, 2024 and sell it today you would earn a total of  157.00  from holding Air France KLM SA or generate 19.41% 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.  Air France KLM SA

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. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Air France KLM

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air France sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Air France

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

The idea behind STMicroelectronics NV and Air France KLM SA 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.