Correlation Between STMicroelectronics and Silicon Laboratories

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

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

Diversification Opportunities for STMicroelectronics and Silicon Laboratories

0.11

Correlation Coefficient

STMicroelectronics  Silicon Laboratories

Average diversification

The 3 months correlation between STMicroelectronics and Silicon is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories 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 Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Silicon Laboratories go up and down completely randomly.

Pair Corralation between STMicroelectronics and Silicon Laboratories

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Silicon Laboratories. In addition to that, STMicroelectronics is 1.1 times more volatile than Silicon Laboratories. It trades about -0.06 of its total potential returns per unit of risk. Silicon Laboratories is currently generating about 0.07 per unit of volatility. If you would invest  11,136  in Silicon Laboratories on September 23, 2024 and sell it today you would earn a total of  1,364  from holding Silicon Laboratories or generate 12.25% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Silicon Laboratories

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Silicon Laboratories

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Laboratories are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Silicon Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Silicon Laboratories

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

The idea behind STMicroelectronics NV and Silicon Laboratories 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.