Correlation Between Peabody Energy and STMICROELECTRONICS

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

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

Diversification Opportunities for Peabody Energy and STMICROELECTRONICS

-0.09

Correlation Coefficient

Peabody Energy  STMICROELECTRONICS

Good diversification

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

Pair Corralation between Peabody Energy and STMICROELECTRONICS

Assuming the 90 days horizon Peabody Energy is expected to under-perform the STMICROELECTRONICS. In addition to that, Peabody Energy is 1.35 times more volatile than STMICROELECTRONICS. It trades about -0.1 of its total potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.09 per unit of volatility. If you would invest  2,645  in STMICROELECTRONICS on September 28, 2024 and sell it today you would lose (282.00) from holding STMICROELECTRONICS or give up 10.66% of portfolio value over 90 days.

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

Peabody Energy  vs.  STMICROELECTRONICS

Peabody Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Peabody Energy and STMICROELECTRONICS

The main advantage of trading using opposite Peabody Energy and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peabody Energy 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's long position.

The idea behind Peabody Energy and STMICROELECTRONICS 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.