Correlation Between STMicroelectronics and Arbor Realty

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

Diversification Opportunities for STMicroelectronics and Arbor Realty

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between STMicroelectronics and Arbor is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Arbor Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Realty Trust 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 are associated (or correlated) with Arbor Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Realty Trust has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Arbor Realty go up and down completely randomly.

Pair Corralation between STMicroelectronics and Arbor Realty

Assuming the 90 days horizon STMicroelectronics is expected to generate 1.17 times less return on investment than Arbor Realty. In addition to that, STMicroelectronics is 1.39 times more volatile than Arbor Realty Trust. It trades about 0.02 of its total potential returns per unit of risk. Arbor Realty Trust is currently generating about 0.03 per unit of volatility. If you would invest  1,198  in Arbor Realty Trust on September 3, 2022 and sell it today you would earn a total of  279.00  from holding Arbor Realty Trust or generate 23.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

STMicroelectronics NV  vs.  Arbor Realty Trust

 Performance (%) 
       Timeline  
STMicroelectronics 
STMicroelectronics Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, STMicroelectronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics Price Channel

Arbor Realty Trust 
Arbor Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Arbor Realty may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Arbor Price Channel

STMicroelectronics and Arbor Realty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with STMicroelectronics and Arbor Realty

The main advantage of trading using opposite STMicroelectronics and Arbor Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, Arbor Realty 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 Arbor Realty will offset losses from the drop in Arbor Realty's long position.
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The idea behind STMicroelectronics NV and Arbor Realty Trust 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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