Correlation Between STMicroelectronics and Pressure Technologies

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

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

Diversification Opportunities for STMicroelectronics and Pressure Technologies

0.11

Correlation Coefficient

STMicroelectronics  Pressure Technologies

Average diversification

The 3 months correlation between STMicroelectronics and Pressure is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Pressure Technologies Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pressure Technologies Plc 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 Pressure Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pressure Technologies Plc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Pressure Technologies go up and down completely randomly.

Pair Corralation between STMicroelectronics and Pressure Technologies

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.41 times more return on investment than Pressure Technologies. However, STMicroelectronics is 1.41 times more volatile than Pressure Technologies Plc. It trades about -0.04 of its potential returns per unit of risk. Pressure Technologies Plc is currently generating about -0.1 per unit of risk. If you would invest  2,398  in STMicroelectronics NV on December 29, 2024 and sell it today you would lose (263.00) from holding STMicroelectronics NV or give up 10.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.19%
Values	Daily Returns

STMicroelectronics NV  vs.  Pressure Technologies Plc

STMicroelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pressure Technologies Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pressure Technologies Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with STMicroelectronics and Pressure Technologies

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

The idea behind STMicroelectronics NV and Pressure Technologies Plc 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.