Correlation Between Stmicroelectronics and Microsoft Corp

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

Diversification Opportunities for Stmicroelectronics and Microsoft Corp

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Stmicroelectronics and Microsoft is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Stmicroelectronics NV ADR and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp 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 ADR are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Stmicroelectronics i.e., Stmicroelectronics and Microsoft Corp go up and down completely randomly.

Pair Corralation between Stmicroelectronics and Microsoft Corp

Considering the 90-day investment horizon Stmicroelectronics NV ADR is expected to under-perform the Microsoft Corp. In addition to that, Stmicroelectronics is 1.41 times more volatile than Microsoft Corp. It trades about -0.03 of its total potential returns per unit of risk. Microsoft Corp is currently generating about -0.03 per unit of volatility. If you would invest  28,670  in Microsoft Corp on June 28, 2022 and sell it today you would lose (4,878)  from holding Microsoft Corp or give up 17.01% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Stmicroelectronics NV ADR  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Stmicroelectronics NV ADR 
Stmicroelectronics Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Stmicroelectronics NV ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, Stmicroelectronics is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Stmicroelectronics Price Channel

Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Stmicroelectronics and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Stmicroelectronics and Microsoft Corp

The main advantage of trading using opposite Stmicroelectronics and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stmicroelectronics position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
Stmicroelectronics vs. Kibush Capital Corp
The idea behind Stmicroelectronics NV ADR and Microsoft Corp 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.
Microsoft Corp vs. Kibush Capital 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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