Correlation Between X Fab and STMicroelectronics

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

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

Diversification Opportunities for X Fab and STMicroelectronics

0.26

Correlation Coefficient

X Fab  STMicroelectronics

Modest diversification

The 3 months correlation between XFAB and STMicroelectronics is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding X Fab Silicon and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and X Fab 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 X Fab Silicon 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 X Fab i.e., X Fab and STMicroelectronics go up and down completely randomly.

Pair Corralation between X Fab and STMicroelectronics

Assuming the 90 days trading horizon X Fab Silicon is expected to under-perform the STMicroelectronics. In addition to that, X Fab is 1.12 times more volatile than STMicroelectronics NV. It trades about -0.01 of its total potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.01 per unit of volatility. If you would invest  2,437  in STMicroelectronics NV on October 26, 2024 and sell it today you would lose (7.00) from holding STMicroelectronics NV or give up 0.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

X Fab Silicon  vs.  STMicroelectronics NV

X Fab Silicon

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in X Fab Silicon are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, X Fab may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 relatively invariable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with X Fab and STMicroelectronics

The main advantage of trading using opposite X Fab and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X Fab 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 X Fab Silicon 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.