Correlation Between Texas Instruments and STMicroelectronics

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

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

Diversification Opportunities for Texas Instruments and STMicroelectronics

-0.02

Correlation Coefficient

Texas Instruments  STMicroelectronics

Good diversification

The 3 months correlation between Texas and STMicroelectronics is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Texas Instruments Incorporated and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Texas Instruments 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 Texas Instruments Incorporated 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 Texas Instruments i.e., Texas Instruments and STMicroelectronics go up and down completely randomly.

Pair Corralation between Texas Instruments and STMicroelectronics

Assuming the 90 days trading horizon Texas Instruments is expected to generate 2.99 times less return on investment than STMicroelectronics. In addition to that, Texas Instruments is 1.13 times more volatile than STMicroelectronics NV. It trades about 0.02 of its total potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.06 per unit of volatility. If you would invest  15,184  in STMicroelectronics NV on September 23, 2024 and sell it today you would earn a total of  816.00  from holding STMicroelectronics NV or generate 5.37% return on investment over 90 days.

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

Texas Instruments Incorporated  vs.  STMicroelectronics NV

Texas Instruments

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Instruments Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Texas Instruments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

STMicroelectronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 4 (%) 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.

Pair Trading with Texas Instruments and STMicroelectronics

The main advantage of trading using opposite Texas Instruments and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Instruments 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 Texas Instruments Incorporated and STMicroelectronics NV 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.