Correlation Between British American and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and STMicroelectronics NV, you can compare the effects of market volatilities on British American 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 British American with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and STMicroelectronics.
Diversification Opportunities for British American and STMicroelectronics
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between British and STMicroelectronics is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and British American 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 British American Tobacco 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 British American i.e., British American and STMicroelectronics go up and down completely randomly.
Pair Corralation between British American and STMicroelectronics
Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.12 times more return on investment than STMicroelectronics. However, British American is 1.12 times more volatile than STMicroelectronics NV. It trades about 0.11 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.22 per unit of risk. If you would invest 4,477 in British American Tobacco on November 8, 2024 and sell it today you would earn a total of 349.00 from holding British American Tobacco or generate 7.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
British American Tobacco vs. STMicroelectronics NV
Performance |
| Timeline |
| British American Tobacco |
| STMicroelectronics |
British American and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and STMicroelectronics
The main advantage of trading using opposite British American and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. DXC Technology | British American vs. Monster Beverage | British American vs. Check Point Software | British American vs. Take Two Interactive Software |
| STMicroelectronics vs. Taiwan Semiconductor Manufacturing | STMicroelectronics vs. NVIDIA | STMicroelectronics vs. Broadcom | STMicroelectronics vs. Texas Instruments Incorporated |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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