Correlation Between STMicroelectronics and Universal Entertainment

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

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

Diversification Opportunities for STMicroelectronics and Universal Entertainment

0.57

Correlation Coefficient

STMicroelectronics  Universal Entertainment

Very weak diversification

The 3 months correlation between STMicroelectronics and Universal is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment 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 Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Universal Entertainment go up and down completely randomly.

Pair Corralation between STMicroelectronics and Universal Entertainment

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.66 times more return on investment than Universal Entertainment. However, STMicroelectronics NV is 1.52 times less risky than Universal Entertainment. It trades about -0.11 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.08 per unit of risk. If you would invest  2,848  in STMicroelectronics NV on August 31, 2024 and sell it today you would lose (446.00) from holding STMicroelectronics NV or give up 15.66% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Universal Entertainment

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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with STMicroelectronics and Universal Entertainment

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

The idea behind STMicroelectronics NV and Universal Entertainment 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.