Correlation Between Bread Financial and STMicroelectronics

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

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

Diversification Opportunities for Bread Financial and STMicroelectronics

-0.09

Correlation Coefficient

Bread Financial  STMicroelectronics

Good diversification

The 3 months correlation between Bread and STMicroelectronics is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Bread Financial 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 Bread Financial Holdings 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 Bread Financial i.e., Bread Financial and STMicroelectronics go up and down completely randomly.

Pair Corralation between Bread Financial and STMicroelectronics

Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 1.81 times more return on investment than STMicroelectronics. However, Bread Financial is 1.81 times more volatile than STMicroelectronics NV. It trades about 0.17 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.02 per unit of risk. If you would invest  7,138  in Bread Financial Holdings on September 19, 2024 and sell it today you would earn a total of  2,752  from holding Bread Financial Holdings or generate 38.55% return on investment over 90 days.

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

Bread Financial Holdings  vs.  STMicroelectronics NV

Bread Financial Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bread Financial and STMicroelectronics

The main advantage of trading using opposite Bread Financial and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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 Bread Financial Holdings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.