Correlation Between Titan Company and STMicroelectronics

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

By analyzing existing cross correlation between Titan Company Limited and STMicroelectronics NV, you can compare the effects of market volatilities on Titan Company and STMicroelectronics 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 Titan Company with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Titan Company and STMicroelectronics.

Diversification Opportunities for Titan Company and STMicroelectronics

-0.24

Correlation Coefficient

Titan Company  STMicroelectronics

Very good diversification

The 3 months correlation between Titan and STMicroelectronics is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Titan Company Limited and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Titan Company 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 Titan Company Limited are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Titan Company i.e., Titan Company and STMicroelectronics go up and down completely randomly.

Pair Corralation between Titan Company and STMicroelectronics

Assuming the 90 days trading horizon Titan Company Limited is expected to generate 0.6 times more return on investment than STMicroelectronics. However, Titan Company Limited is 1.66 times less risky than STMicroelectronics. It trades about 0.05 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.05 per unit of risk. If you would invest  230,901  in Titan Company Limited on December 2, 2024 and sell it today you would earn a total of  76,824  from holding Titan Company Limited or generate 33.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.0%
Values	Daily Returns

Titan Company Limited  vs.  STMicroelectronics NV

Titan Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Titan Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Titan Company and STMicroelectronics

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

The idea behind Titan Company Limited and STMicroelectronics NV 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.