Correlation Between STMicroelectronics and CEVA

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

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

Diversification Opportunities for STMicroelectronics and CEVA

-0.68

Correlation Coefficient

STMicroelectronics  CEVA

Excellent diversification

The 3 months correlation between STMicroelectronics and CEVA is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and CEVA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEVA Inc 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 ADR are associated (or correlated) with CEVA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEVA Inc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and CEVA go up and down completely randomly.

Pair Corralation between STMicroelectronics and CEVA

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the CEVA. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.46 times less risky than CEVA. The stock trades about -0.05 of its potential returns per unit of risk. The CEVA Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,402  in CEVA Inc on October 22, 2024 and sell it today you would earn a total of  1,016  from holding CEVA Inc or generate 42.3% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  CEVA Inc

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

CEVA Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CEVA Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CEVA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and CEVA

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

The idea behind STMicroelectronics NV ADR and CEVA Inc 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.