Correlation Between Trainline Plc and STMicroelectronics

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

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

Diversification Opportunities for Trainline Plc and STMicroelectronics

-0.67

Correlation Coefficient

Trainline Plc  STMicroelectronics

Excellent diversification

The 3 months correlation between Trainline and STMicroelectronics is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Trainline Plc and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Trainline Plc 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 Trainline Plc 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 Trainline Plc i.e., Trainline Plc and STMicroelectronics go up and down completely randomly.

Pair Corralation between Trainline Plc and STMicroelectronics

Assuming the 90 days trading horizon Trainline Plc is expected to generate 0.97 times more return on investment than STMicroelectronics. However, Trainline Plc is 1.03 times less risky than STMicroelectronics. It trades about 0.21 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.09 per unit of risk. If you would invest  30,460  in Trainline Plc on September 2, 2024 and sell it today you would earn a total of  10,320  from holding Trainline Plc or generate 33.88% return on investment over 90 days.

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

Trainline Plc  vs.  STMicroelectronics NV

Trainline Plc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trainline Plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trainline Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Trainline Plc and STMicroelectronics

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.