Correlation Between NVIDIA and STMicroelectronics

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

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

Diversification Opportunities for NVIDIA and STMicroelectronics

-0.51

Correlation Coefficient

NVIDIA  STMicroelectronics

Excellent diversification

The 3 months correlation between NVIDIA and STMicroelectronics is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and STMicroelectronics go up and down completely randomly.

Pair Corralation between NVIDIA and STMicroelectronics

Given the investment horizon of 90 days NVIDIA is expected to under-perform the STMicroelectronics. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.63 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 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,331  in STMicroelectronics NV on September 23, 2024 and sell it today you would earn a total of  64.00  from holding STMicroelectronics NV or generate 2.75% return on investment over 90 days.

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

NVIDIA  vs.  STMicroelectronics NV

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NVIDIA and STMicroelectronics

The main advantage of trading using opposite NVIDIA and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.