Correlation Between Charter Communications and STMicroelectronics

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

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

Diversification Opportunities for Charter Communications and STMicroelectronics

0.22

Correlation Coefficient

Charter Communications  STMicroelectronics

Modest diversification

The 3 months correlation between Charter and STMicroelectronics is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and STMicroelectronics go up and down completely randomly.

Pair Corralation between Charter Communications and STMicroelectronics

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Charter Communications is 1.03 times less risky than STMicroelectronics. The stock trades about -0.11 of its potential returns per unit of risk. The STMicroelectronics NV is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  22,686  in STMicroelectronics NV on January 31, 2024 and sell it today you would lose (1,398) from holding STMicroelectronics NV or give up 6.16% of portfolio value over 90 days.

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

Charter Communications  vs.  STMicroelectronics NV

Charter Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

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 somewhat strong basic indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Charter Communications and STMicroelectronics

The main advantage of trading using opposite Charter Communications and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..