Correlation Between GENERAL and STMicroelectronics

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

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

Diversification Opportunities for GENERAL and STMicroelectronics

-0.2

Correlation Coefficient

GENERAL  STMicroelectronics

Good diversification

The 3 months correlation between GENERAL and STMicroelectronics is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and GENERAL 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 GENERAL ELEC CAP 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 NV ADR has no effect on the direction of GENERAL i.e., GENERAL and STMicroelectronics go up and down completely randomly.

Pair Corralation between GENERAL and STMicroelectronics

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to under-perform the STMicroelectronics. In addition to that, GENERAL is 1.1 times more volatile than STMicroelectronics NV ADR. It trades about -0.1 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about -0.05 per unit of volatility. If you would invest  2,850  in STMicroelectronics NV ADR on September 13, 2024 and sell it today you would lose (218.00) from holding STMicroelectronics NV ADR or give up 7.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.79%
Values	Daily Returns

GENERAL ELEC CAP  vs.  STMicroelectronics NV ADR

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for GENERAL ELEC CAP investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with GENERAL and STMicroelectronics

The main advantage of trading using opposite GENERAL and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP and STMicroelectronics NV ADR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.