Correlation Between Federal Home and STMICROELECTRONICS

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

By analyzing existing cross correlation between Federal Home Loan and STMICROELECTRONICS, you can compare the effects of market volatilities on Federal Home 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 Federal Home with a short position of STMICROELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Home and STMICROELECTRONICS.

Diversification Opportunities for Federal Home and STMICROELECTRONICS

-0.66

Correlation Coefficient

Federal Home  STMICROELECTRONICS

Excellent diversification

The 3 months correlation between Federal and STMICROELECTRONICS is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Federal Home 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 Federal Home Loan 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 has no effect on the direction of Federal Home i.e., Federal Home and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Federal Home and STMICROELECTRONICS

Assuming the 90 days horizon Federal Home Loan is expected to generate 2.85 times more return on investment than STMICROELECTRONICS. However, Federal Home is 2.85 times more volatile than STMICROELECTRONICS. It trades about 0.13 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.16 per unit of risk. If you would invest  131.00  in Federal Home Loan on September 3, 2024 and sell it today you would earn a total of  167.00  from holding Federal Home Loan or generate 127.48% return on investment over 90 days.

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

Federal Home Loan  vs.  STMICROELECTRONICS

Federal Home Loan

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Federal Home and STMICROELECTRONICS

The main advantage of trading using opposite Federal Home and STMICROELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Home 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's long position.

The idea behind Federal Home Loan and STMICROELECTRONICS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.