Correlation Between STMicroelectronics and DXC Technology

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

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

Diversification Opportunities for STMicroelectronics and DXC Technology

0.0

Correlation Coefficient

STMicroelectronics  DXC Technology

Pay attention - limited upside

The 3 months correlation between STMicroelectronics and DXC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and DXC Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXC Technology 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 DXC Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXC Technology has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and DXC Technology go up and down completely randomly.

Pair Corralation between STMicroelectronics and DXC Technology

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the DXC Technology. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.03 times less risky than DXC Technology. The stock trades about -0.03 of its potential returns per unit of risk. The DXC Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  15,162  in DXC Technology on October 23, 2024 and sell it today you would lose (2,850) from holding DXC Technology or give up 18.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	77.14%
Values	Daily Returns

STMicroelectronics NV  vs.  DXC Technology

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 somewhat strong primary indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DXC Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DXC Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, DXC Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and DXC Technology

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

The idea behind STMicroelectronics NV and DXC Technology 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..