Correlation Between STMicroelectronics and Veeva Systems

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

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

Diversification Opportunities for STMicroelectronics and Veeva Systems

-0.44

Correlation Coefficient

STMicroelectronics  Veeva Systems

Very good diversification

The 3 months correlation between STMicroelectronics and Veeva is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Veeva Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veeva Systems 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 Veeva Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veeva Systems has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Veeva Systems go up and down completely randomly.

Pair Corralation between STMicroelectronics and Veeva Systems

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Veeva Systems. In addition to that, STMicroelectronics is 1.42 times more volatile than Veeva Systems. It trades about -0.04 of its total potential returns per unit of risk. Veeva Systems is currently generating about 0.04 per unit of volatility. If you would invest  20,740  in Veeva Systems on December 25, 2024 and sell it today you would earn a total of  920.00  from holding Veeva Systems or generate 4.44% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Veeva Systems

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Veeva Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Veeva Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Veeva Systems is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with STMicroelectronics and Veeva Systems

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

The idea behind STMicroelectronics NV and Veeva Systems 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..