Correlation Between Aeorema Communications and STMicroelectronics

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

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

Diversification Opportunities for Aeorema Communications and STMicroelectronics

-0.37

Correlation Coefficient

Aeorema Communications  STMicroelectronics

Very good diversification

The 3 months correlation between Aeorema and STMicroelectronics is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Aeorema Communications 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 Aeorema Communications 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 Aeorema Communications i.e., Aeorema Communications and STMicroelectronics go up and down completely randomly.

Pair Corralation between Aeorema Communications and STMicroelectronics

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to generate 0.63 times more return on investment than STMicroelectronics. However, Aeorema Communications Plc is 1.6 times less risky than STMicroelectronics. It trades about 0.51 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.01 per unit of risk. If you would invest  5,450  in Aeorema Communications Plc on September 25, 2024 and sell it today you would earn a total of  650.00  from holding Aeorema Communications Plc or generate 11.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Aeorema Communications Plc  vs.  STMicroelectronics NV

Aeorema Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aeorema Communications Plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Aeorema Communications may actually be approaching a critical reversion point that can send shares even higher in January 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. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Aeorema Communications and STMicroelectronics

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

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.