Correlation Between Coty and STMicroelectronics

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

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

Diversification Opportunities for Coty and STMicroelectronics

-0.03

Correlation Coefficient

Coty  STMicroelectronics

Good diversification

The 3 months correlation between Coty and STMicroelectronics is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and Coty 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 Coty Inc 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 NV ADR has no effect on the direction of Coty i.e., Coty and STMicroelectronics go up and down completely randomly.

Pair Corralation between Coty and STMicroelectronics

Given the investment horizon of 90 days Coty is expected to generate 4.23 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, Coty Inc is 1.1 times less risky than STMicroelectronics. It trades about 0.03 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,264  in STMicroelectronics NV ADR on April 30, 2025 and sell it today you would earn a total of  405.00  from holding STMicroelectronics NV ADR or generate 17.89% return on investment over 90 days.

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

Coty Inc  vs.  STMicroelectronics NV ADR

Coty Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coty Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Coty is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

STMicroelectronics NV ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, STMicroelectronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coty and STMicroelectronics

The main advantage of trading using opposite Coty and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coty 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 Coty Inc and STMicroelectronics NV ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.