Correlation Between STMicroelectronics and Lattice Semiconductor

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

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

Diversification Opportunities for STMicroelectronics and Lattice Semiconductor

-0.27

Correlation Coefficient

STMicroelectronics  Lattice Semiconductor

Very good diversification

The 3 months correlation between STMicroelectronics and Lattice is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Lattice Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lattice Semiconductor 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 Lattice Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lattice Semiconductor has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Lattice Semiconductor go up and down completely randomly.

Pair Corralation between STMicroelectronics and Lattice Semiconductor

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 1.8 times more return on investment than Lattice Semiconductor. However, STMicroelectronics is 1.8 times more volatile than Lattice Semiconductor. It trades about 0.03 of its potential returns per unit of risk. Lattice Semiconductor is currently generating about -0.15 per unit of risk. If you would invest  2,585  in STMicroelectronics NV on October 10, 2024 and sell it today you would earn a total of  16.00  from holding STMicroelectronics NV or generate 0.62% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Lattice Semiconductor

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 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.

Lattice Semiconductor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lattice Semiconductor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Lattice Semiconductor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with STMicroelectronics and Lattice Semiconductor

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

The idea behind STMicroelectronics NV and Lattice Semiconductor 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 CEOs Directory module to screen CEOs from public companies around the world.