Correlation Between STMicroelectronics and NLIGHT

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

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

Diversification Opportunities for STMicroelectronics and NLIGHT

-0.2

Correlation Coefficient

STMicroelectronics  NLIGHT

Good diversification

The 3 months correlation between STMicroelectronics and NLIGHT is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT 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 are associated (or correlated) with NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and NLIGHT go up and down completely randomly.

Pair Corralation between STMicroelectronics and NLIGHT

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 1.14 times more return on investment than NLIGHT. However, STMicroelectronics is 1.14 times more volatile than nLIGHT Inc. It trades about -0.02 of its potential returns per unit of risk. nLIGHT Inc is currently generating about -0.1 per unit of risk. If you would invest  2,501  in STMicroelectronics NV on December 30, 2024 and sell it today you would lose (223.00) from holding STMicroelectronics NV or give up 8.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

STMicroelectronics NV  vs.  nLIGHT Inc

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 nearly stable technical and fundamental indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

nLIGHT Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with STMicroelectronics and NLIGHT

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

The idea behind STMicroelectronics NV and nLIGHT 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.