Correlation Between Infineon Technologies and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both Infineon Technologies 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 Infineon Technologies and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Infineon Technologies AG and STMicroelectronics NV, you can compare the effects of market volatilities on Infineon Technologies 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 Infineon Technologies with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Infineon Technologies and STMicroelectronics.
Diversification Opportunities for Infineon Technologies and STMicroelectronics
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Infineon and STMicroelectronics is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Infineon Technologies AG and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Infineon Technologies 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 Infineon Technologies AG 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 Infineon Technologies i.e., Infineon Technologies and STMicroelectronics go up and down completely randomly.
Pair Corralation between Infineon Technologies and STMicroelectronics
Assuming the 90 days horizon Infineon Technologies AG is expected to generate 0.89 times more return on investment than STMicroelectronics. However, Infineon Technologies AG is 1.12 times less risky than STMicroelectronics. It trades about 0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.02 per unit of risk. If you would invest 3,286 in Infineon Technologies AG on August 25, 2024 and sell it today you would lose (186.00) from holding Infineon Technologies AG or give up 5.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.95% |
| Values | Daily Returns |
Infineon Technologies AG vs. STMicroelectronics NV
Performance |
| Timeline |
| Infineon Technologies |
| STMicroelectronics |
Infineon Technologies and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Infineon Technologies and STMicroelectronics
The main advantage of trading using opposite Infineon Technologies and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Infineon Technologies 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 Infineon Technologies AG 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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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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