Correlation Between STMicroelectronics and LBG Media

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

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

Diversification Opportunities for STMicroelectronics and LBG Media

0.15

Correlation Coefficient

STMicroelectronics  LBG Media

Average diversification

The 3 months correlation between STMicroelectronics and LBG is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and LBG Media PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LBG Media PLC 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 LBG Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LBG Media PLC has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and LBG Media go up and down completely randomly.

Pair Corralation between STMicroelectronics and LBG Media

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the LBG Media. In addition to that, STMicroelectronics is 1.02 times more volatile than LBG Media PLC. It trades about -0.05 of its total potential returns per unit of risk. LBG Media PLC is currently generating about 0.0 per unit of volatility. If you would invest  12,750  in LBG Media PLC on September 4, 2024 and sell it today you would lose (250.00) from holding LBG Media PLC or give up 1.96% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  LBG Media PLC

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

LBG Media PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LBG Media PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, LBG Media is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with STMicroelectronics and LBG Media

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

The idea behind STMicroelectronics NV and LBG Media PLC 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.