Correlation Between State Street and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both State Street 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 State Street and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Street Corp and STMicroelectronics NV, you can compare the effects of market volatilities on State Street 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 State Street with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and STMicroelectronics.
Diversification Opportunities for State Street and STMicroelectronics
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between State and STMicroelectronics is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and State Street 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 State Street Corp 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 State Street i.e., State Street and STMicroelectronics go up and down completely randomly.
Pair Corralation between State Street and STMicroelectronics
Assuming the 90 days trading horizon State Street Corp is expected to generate 0.47 times more return on investment than STMicroelectronics. However, State Street Corp is 2.13 times less risky than STMicroelectronics. It trades about 0.14 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.03 per unit of risk. If you would invest 9,614 in State Street Corp on September 13, 2024 and sell it today you would earn a total of 283.00 from holding State Street Corp or generate 2.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
State Street Corp vs. STMicroelectronics NV
Performance |
| Timeline |
| State Street Corp |
| STMicroelectronics |
State Street and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with State Street and STMicroelectronics
The main advantage of trading using opposite State Street and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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.| State Street vs. Aeorema Communications Plc | State Street vs. Spirent Communications plc | State Street vs. Infrastrutture Wireless Italiane | State Street vs. MTI Wireless Edge |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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