Correlation Between STMicroelectronics and Diagnostic Medical

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

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

Diversification Opportunities for STMicroelectronics and Diagnostic Medical

0.6

Correlation Coefficient

STMicroelectronics  Diagnostic Medical

Poor diversification

The 3 months correlation between STMicroelectronics and Diagnostic is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Diagnostic Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diagnostic Medical 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 Diagnostic Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diagnostic Medical has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Diagnostic Medical go up and down completely randomly.

Pair Corralation between STMicroelectronics and Diagnostic Medical

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 0.66 times more return on investment than Diagnostic Medical. However, STMicroelectronics NV is 1.53 times less risky than Diagnostic Medical. It trades about -0.05 of its potential returns per unit of risk. Diagnostic Medical Systems is currently generating about -0.1 per unit of risk. If you would invest  2,653  in STMicroelectronics NV on September 5, 2024 and sell it today you would lose (211.00) from holding STMicroelectronics NV or give up 7.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

STMicroelectronics NV  vs.  Diagnostic Medical Systems

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. 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.

Diagnostic Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diagnostic Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with STMicroelectronics and Diagnostic Medical

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

The idea behind STMicroelectronics NV and Diagnostic Medical Systems 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..