Correlation Between Advanced Medical and STMicroelectronics

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

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

Diversification Opportunities for Advanced Medical and STMicroelectronics

0.16

Correlation Coefficient

Advanced Medical  STMicroelectronics

Average diversification

The 3 months correlation between Advanced and STMicroelectronics is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Medical Solutions and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Advanced Medical 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 Advanced Medical Solutions 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 Advanced Medical i.e., Advanced Medical and STMicroelectronics go up and down completely randomly.

Pair Corralation between Advanced Medical and STMicroelectronics

Assuming the 90 days trading horizon Advanced Medical Solutions is expected to generate 1.06 times more return on investment than STMicroelectronics. However, Advanced Medical is 1.06 times more volatile than STMicroelectronics NV. It trades about 0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.06 per unit of risk. If you would invest  19,970  in Advanced Medical Solutions on September 26, 2024 and sell it today you would lose (30.00) from holding Advanced Medical Solutions or give up 0.15% of portfolio value over 90 days.

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

Advanced Medical Solutions  vs.  STMicroelectronics NV

Advanced Medical Sol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Medical Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 Advanced Medical and STMicroelectronics

The main advantage of trading using opposite Advanced Medical and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Medical 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 Advanced Medical Solutions 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.