Correlation Between Universal Entertainment and STMicroelectronics

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

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

Diversification Opportunities for Universal Entertainment and STMicroelectronics

0.59

Correlation Coefficient

Universal Entertainment  STMicroelectronics

Very weak diversification

The 3 months correlation between Universal and STMicroelectronics is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Universal Entertainment and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Universal Entertainment 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 Universal Entertainment 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 Universal Entertainment i.e., Universal Entertainment and STMicroelectronics go up and down completely randomly.

Pair Corralation between Universal Entertainment and STMicroelectronics

Assuming the 90 days trading horizon Universal Entertainment is expected to under-perform the STMicroelectronics. In addition to that, Universal Entertainment is 1.53 times more volatile than STMicroelectronics NV. It trades about -0.09 of its total potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.11 per unit of volatility. If you would invest  2,848  in STMicroelectronics NV on September 2, 2024 and sell it today you would lose (467.00) from holding STMicroelectronics NV or give up 16.4% of portfolio value over 90 days.

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

Universal Entertainment  vs.  STMicroelectronics NV

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Universal Entertainment and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Entertainment 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 Universal Entertainment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..