Correlation Between STMicroelectronics and LEGACY IRON

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

By analyzing existing cross correlation between STMicroelectronics NV and LEGACY IRON ORE, you can compare the effects of market volatilities on STMicroelectronics and LEGACY IRON 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 LEGACY IRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and LEGACY IRON.

Diversification Opportunities for STMicroelectronics and LEGACY IRON

0.53

Correlation Coefficient

STMicroelectronics  LEGACY IRON

Very weak diversification

The 3 months correlation between STMicroelectronics and LEGACY is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and LEGACY IRON ORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGACY IRON ORE 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 NV are associated (or correlated) with LEGACY IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGACY IRON ORE has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and LEGACY IRON go up and down completely randomly.

Pair Corralation between STMicroelectronics and LEGACY IRON

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 1.44 times more return on investment than LEGACY IRON. However, STMicroelectronics is 1.44 times more volatile than LEGACY IRON ORE. It trades about -0.01 of its potential returns per unit of risk. LEGACY IRON ORE is currently generating about -0.15 per unit of risk. If you would invest  2,581  in STMicroelectronics NV on September 13, 2024 and sell it today you would lose (48.00) from holding STMicroelectronics NV or give up 1.86% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  LEGACY IRON ORE

STMicroelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

LEGACY IRON ORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEGACY IRON ORE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 STMicroelectronics and LEGACY IRON

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

The idea behind STMicroelectronics NV and LEGACY IRON ORE 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.