Correlation Between STMicroelectronics and JD

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and JD 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 JD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STMicroelectronics NV and JD Inc, you can compare the effects of market volatilities on STMicroelectronics and JD 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 JD. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and JD.

Diversification Opportunities for STMicroelectronics and JD

-0.71

Correlation Coefficient

STMicroelectronics  JD

Pay attention - limited upside

The 3 months correlation between STMicroelectronics and JD is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and JD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc 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 JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and JD go up and down completely randomly.

Pair Corralation between STMicroelectronics and JD

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the JD. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.77 times less risky than JD. The stock trades about -0.06 of its potential returns per unit of risk. The JD Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,279  in JD Inc on March 2, 2024 and sell it today you would earn a total of  274.00  from holding JD Inc or generate 12.02% return on investment over 90 days.

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

STMicroelectronics NV  vs.  JD Inc

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

JD Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JD sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and JD

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

The idea behind STMicroelectronics NV and JD Inc 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.