Correlation Between MagnaChip Semiconductor and STMicroelectronics

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

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

Diversification Opportunities for MagnaChip Semiconductor and STMicroelectronics

0.73

Correlation Coefficient

MagnaChip Semiconductor  STMicroelectronics

Poor diversification

The 3 months correlation between MagnaChip and STMicroelectronics is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 NV ADR has no effect on the direction of MagnaChip Semiconductor i.e., MagnaChip Semiconductor and STMicroelectronics go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and STMicroelectronics

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the STMicroelectronics. In addition to that, MagnaChip Semiconductor is 1.36 times more volatile than STMicroelectronics NV ADR. It trades about -0.06 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.05 per unit of volatility. If you would invest  2,850  in STMicroelectronics NV ADR on September 13, 2024 and sell it today you would lose (218.00) from holding STMicroelectronics NV ADR or give up 7.65% of portfolio value over 90 days.

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

MagnaChip Semiconductor  vs.  STMicroelectronics NV ADR

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MagnaChip Semiconductor and STMicroelectronics

The main advantage of trading using opposite MagnaChip Semiconductor and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor and STMicroelectronics NV ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.