Correlation Between Essex Property and STMicroelectronics

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

By analyzing existing cross correlation between Essex Property Trust and STMicroelectronics NV, you can compare the effects of market volatilities on Essex Property 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 Essex Property with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essex Property and STMicroelectronics.

Diversification Opportunities for Essex Property and STMicroelectronics

-0.01

Correlation Coefficient

Essex Property  STMicroelectronics

Good diversification

The 3 months correlation between Essex and STMicroelectronics is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Essex Property Trust and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Essex Property 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 Essex Property Trust 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 Essex Property i.e., Essex Property and STMicroelectronics go up and down completely randomly.

Pair Corralation between Essex Property and STMicroelectronics

Assuming the 90 days horizon Essex Property is expected to generate 31.66 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, Essex Property Trust is 2.13 times less risky than STMicroelectronics. It trades about 0.02 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,899  in STMicroelectronics NV on April 23, 2025 and sell it today you would earn a total of  903.00  from holding STMicroelectronics NV or generate 47.55% return on investment over 90 days.

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

Essex Property Trust  vs.  STMicroelectronics NV

Essex Property Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Essex Property is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

STMicroelectronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, STMicroelectronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essex Property and STMicroelectronics

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

The idea behind Essex Property Trust and STMicroelectronics NV 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.