Correlation Between STMicroelectronics and Allegro MicrosystemsInc

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Allegro MicrosystemsInc 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 Allegro MicrosystemsInc 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 Allegro MicrosystemsInc, you can compare the effects of market volatilities on STMicroelectronics and Allegro MicrosystemsInc 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 Allegro MicrosystemsInc. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Allegro MicrosystemsInc.

Diversification Opportunities for STMicroelectronics and Allegro MicrosystemsInc

0.62

Correlation Coefficient

STMicroelectronics  Allegro MicrosystemsInc

Poor diversification

The 3 months correlation between STMicroelectronics and Allegro is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Allegro MicrosystemsInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro MicrosystemsInc 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 Allegro MicrosystemsInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro MicrosystemsInc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Allegro MicrosystemsInc go up and down completely randomly.

Pair Corralation between STMicroelectronics and Allegro MicrosystemsInc

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Allegro MicrosystemsInc. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.31 times less risky than Allegro MicrosystemsInc. The stock trades about -0.17 of its potential returns per unit of risk. The Allegro MicrosystemsInc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,108  in Allegro MicrosystemsInc on February 2, 2024 and sell it today you would lose (148.00) from holding Allegro MicrosystemsInc or give up 4.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

STMicroelectronics NV ADR  vs.  Allegro MicrosystemsInc

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Allegro MicrosystemsInc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Allegro MicrosystemsInc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Allegro MicrosystemsInc is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with STMicroelectronics and Allegro MicrosystemsInc

The main advantage of trading using opposite STMicroelectronics and Allegro MicrosystemsInc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, Allegro MicrosystemsInc 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 Allegro MicrosystemsInc will offset losses from the drop in Allegro MicrosystemsInc's long position.

The idea behind STMicroelectronics NV ADR and Allegro MicrosystemsInc 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.