Correlation Between STMICROELECTRONICS and Schweizer Electronic

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

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

Diversification Opportunities for STMICROELECTRONICS and Schweizer Electronic

0.62

Correlation Coefficient

STMICROELECTRONICS  Schweizer Electronic

Poor diversification

The 3 months correlation between STMICROELECTRONICS and Schweizer is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS and Schweizer Electronic AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schweizer Electronic and STMICROELECTRONICS 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 STMICROELECTRONICS are associated (or correlated) with Schweizer Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schweizer Electronic has no effect on the direction of STMICROELECTRONICS i.e., STMICROELECTRONICS and Schweizer Electronic go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Schweizer Electronic

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to generate 0.74 times more return on investment than Schweizer Electronic. However, STMICROELECTRONICS is 1.35 times less risky than Schweizer Electronic. It trades about -0.09 of its potential returns per unit of risk. Schweizer Electronic AG is currently generating about -0.11 per unit of risk. If you would invest  4,315  in STMICROELECTRONICS on September 28, 2024 and sell it today you would lose (1,952) from holding STMICROELECTRONICS or give up 45.24% of portfolio value over 90 days.

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

STMICROELECTRONICS  vs.  Schweizer Electronic AG

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.

Schweizer Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schweizer Electronic AG 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.

Pair Trading with STMICROELECTRONICS and Schweizer Electronic

The main advantage of trading using opposite STMICROELECTRONICS and Schweizer Electronic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS position performs unexpectedly, Schweizer Electronic 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 Schweizer Electronic will offset losses from the drop in Schweizer Electronic's long position.

The idea behind STMICROELECTRONICS and Schweizer Electronic AG 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.