Correlation Between STMicroelectronics and Skyworks Solutions

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

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

Diversification Opportunities for STMicroelectronics and Skyworks Solutions

0.43

Correlation Coefficient

STMicroelectronics  Skyworks Solutions

Very weak diversification

The 3 months correlation between STMicroelectronics and Skyworks is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Skyworks Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skyworks Solutions 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 Skyworks Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skyworks Solutions has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Skyworks Solutions go up and down completely randomly.

Pair Corralation between STMicroelectronics and Skyworks Solutions

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 0.98 times more return on investment than Skyworks Solutions. However, STMicroelectronics NV is 1.02 times less risky than Skyworks Solutions. It trades about 0.02 of its potential returns per unit of risk. Skyworks Solutions is currently generating about -0.08 per unit of risk. If you would invest  15,827  in STMicroelectronics NV on September 18, 2024 and sell it today you would earn a total of  173.00  from holding STMicroelectronics NV or generate 1.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

STMicroelectronics NV  vs.  Skyworks Solutions

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 somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Skyworks Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skyworks Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite 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.

Pair Trading with STMicroelectronics and Skyworks Solutions

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

The idea behind STMicroelectronics NV and Skyworks Solutions 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.