Correlation Between STMicroelectronics and British American
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and British American 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 British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV and British American Tobacco, you can compare the effects of market volatilities on STMicroelectronics and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and British American.
Diversification Opportunities for STMicroelectronics and British American
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between STMicroelectronics and British is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and British American go up and down completely randomly.
Pair Corralation between STMicroelectronics and British American
Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 2.48 times more return on investment than British American. However, STMicroelectronics is 2.48 times more volatile than British American Tobacco. It trades about 0.0 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.07 per unit of risk. If you would invest 2,505 in STMicroelectronics NV on October 11, 2024 and sell it today you would lose (22.00) from holding STMicroelectronics NV or give up 0.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
STMicroelectronics NV vs. British American Tobacco
Performance |
| Timeline |
| STMicroelectronics |
| British American Tobacco |
STMicroelectronics and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and British American
The main advantage of trading using opposite STMicroelectronics and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| STMicroelectronics vs. Cairo Communication SpA | STMicroelectronics vs. Infrastrutture Wireless Italiane | STMicroelectronics vs. Compagnie Plastic Omnium | STMicroelectronics vs. Seche Environnement SA |
| British American vs. Panther Metals PLC | British American vs. Cornish Metals | British American vs. Futura Medical | British American vs. Lundin Mining Corp |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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