Correlation Between Amazon and STMicroelectronics

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and STMicroelectronics NV ADR, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and STMicroelectronics.

Diversification Opportunities for Amazon and STMicroelectronics

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between Amazon and STMicroelectronics is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc 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 Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and STMicroelectronics go up and down completely randomly.

Pair Corralation between Amazon and STMicroelectronics

Given the investment horizon of 90 days Amazon is expected to generate 5.53 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, Amazon Inc is 1.02 times less risky than STMicroelectronics. It trades about 0.07 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  3,018  in STMicroelectronics NV ADR on September 3, 2022 and sell it today you would earn a total of  857.00  from holding STMicroelectronics NV ADR or generate 28.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  STMicroelectronics NV ADR

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

STMicroelectronics NV ADR 
STMicroelectronics Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, STMicroelectronics revealed solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics Price Channel

Amazon and STMicroelectronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and STMicroelectronics

The main advantage of trading using opposite Amazon and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.
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The idea behind Amazon Inc 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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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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