Correlation Between STMicroelectronics and Aberforth Smaller

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

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

Diversification Opportunities for STMicroelectronics and Aberforth Smaller

0.92

Correlation Coefficient

STMicroelectronics  Aberforth Smaller

Almost no diversification

The 3 months correlation between STMicroelectronics and Aberforth is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Aberforth Smaller Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberforth Smaller 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 Aberforth Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberforth Smaller has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Aberforth Smaller go up and down completely randomly.

Pair Corralation between STMicroelectronics and Aberforth Smaller

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 3.43 times more return on investment than Aberforth Smaller. However, STMicroelectronics is 3.43 times more volatile than Aberforth Smaller Companies. It trades about 0.27 of its potential returns per unit of risk. Aberforth Smaller Companies is currently generating about 0.33 per unit of risk. If you would invest  1,746  in STMicroelectronics NV on April 21, 2025 and sell it today you would earn a total of  1,027  from holding STMicroelectronics NV or generate 58.82% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Aberforth Smaller Companies

STMicroelectronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, STMicroelectronics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aberforth Smaller

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aberforth Smaller Companies are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Aberforth Smaller exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Aberforth Smaller

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

The idea behind STMicroelectronics NV and Aberforth Smaller Companies 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.