Correlation Between STMicroelectronics and SWISS WATER

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

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

Diversification Opportunities for STMicroelectronics and SWISS WATER

0.68

Correlation Coefficient

STMicroelectronics  SWISS WATER

Poor diversification

The 3 months correlation between STMicroelectronics and SWISS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and SWISS WATER DECAFFCOFFEE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWISS WATER DECAFFCOFFEE 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 SWISS WATER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWISS WATER DECAFFCOFFEE has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and SWISS WATER go up and down completely randomly.

Pair Corralation between STMicroelectronics and SWISS WATER

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.75 times more return on investment than SWISS WATER. However, STMicroelectronics NV is 1.34 times less risky than SWISS WATER. It trades about 0.25 of its potential returns per unit of risk. SWISS WATER DECAFFCOFFEE is currently generating about 0.12 per unit of risk. If you would invest  1,800  in STMicroelectronics NV on April 21, 2025 and sell it today you would earn a total of  1,002  from holding STMicroelectronics NV or generate 55.67% return on investment over 90 days.

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

STMicroelectronics NV  vs.  SWISS WATER DECAFFCOFFEE

STMicroelectronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 19 (%) 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.

SWISS WATER DECAFFCOFFEE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SWISS WATER DECAFFCOFFEE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, SWISS WATER reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and SWISS WATER

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

The idea behind STMicroelectronics NV and SWISS WATER DECAFFCOFFEE 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.