Correlation Between 72147KAJ7 and STMicroelectronics

Can any of the company-specific risk be diversified away by investing in both 72147KAJ7 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 72147KAJ7 and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PPC 425 15 APR 31 and STMicroelectronics NV ADR, you can compare the effects of market volatilities on 72147KAJ7 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 72147KAJ7 with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of 72147KAJ7 and STMicroelectronics.

Diversification Opportunities for 72147KAJ7 and STMicroelectronics

0.04

Correlation Coefficient

72147KAJ7  STMicroelectronics

Significant diversification

The 3 months correlation between 72147KAJ7 and STMicroelectronics is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding PPC 425 15 APR 31 and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and 72147KAJ7 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 PPC 425 15 APR 31 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 NV ADR has no effect on the direction of 72147KAJ7 i.e., 72147KAJ7 and STMicroelectronics go up and down completely randomly.

Pair Corralation between 72147KAJ7 and STMicroelectronics

Assuming the 90 days trading horizon PPC 425 15 APR 31 is expected to under-perform the STMicroelectronics. But the bond apears to be less risky and, when comparing its historical volatility, PPC 425 15 APR 31 is 2.95 times less risky than STMicroelectronics. The bond trades about -0.07 of its potential returns per unit of risk. The STMicroelectronics NV ADR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,603  in STMicroelectronics NV ADR on December 2, 2024 and sell it today you would lose (134.00) from holding STMicroelectronics NV ADR or give up 5.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

PPC 425 15 APR 31  vs.  STMicroelectronics NV ADR

PPC 425 15

Risk-Adjusted Performance

Very Weak

Over the last 90 days PPC 425 15 APR 31 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 72147KAJ7 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with 72147KAJ7 and STMicroelectronics

The main advantage of trading using opposite 72147KAJ7 and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 72147KAJ7 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 PPC 425 15 APR 31 and STMicroelectronics NV ADR 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.