Correlation Between TechnipFMC PLC and STMicroelectronics

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

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

Diversification Opportunities for TechnipFMC PLC and STMicroelectronics

-0.64

Correlation Coefficient

TechnipFMC PLC  STMicroelectronics

Excellent diversification

The 3 months correlation between TechnipFMC and STMicroelectronics is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding TechnipFMC PLC and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and TechnipFMC PLC 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 TechnipFMC PLC 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 TechnipFMC PLC i.e., TechnipFMC PLC and STMicroelectronics go up and down completely randomly.

Pair Corralation between TechnipFMC PLC and STMicroelectronics

Assuming the 90 days trading horizon TechnipFMC PLC is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, TechnipFMC PLC is 1.19 times less risky than STMicroelectronics. The stock trades about -0.14 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,333  in STMicroelectronics NV on September 23, 2024 and sell it today you would earn a total of  16.00  from holding STMicroelectronics NV or generate 0.69% return on investment over 90 days.

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

TechnipFMC PLC  vs.  STMicroelectronics NV

TechnipFMC PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, TechnipFMC PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 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 TechnipFMC PLC and STMicroelectronics

The main advantage of trading using opposite TechnipFMC PLC and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TechnipFMC PLC 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 TechnipFMC PLC 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.