Correlation Between STMicroelectronics and PureTech Health

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

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

Diversification Opportunities for STMicroelectronics and PureTech Health

-0.48

Correlation Coefficient

STMicroelectronics  PureTech Health

Very good diversification

The 3 months correlation between STMicroelectronics and PureTech is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and PureTech Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PureTech Health plc 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 PureTech Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PureTech Health plc has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and PureTech Health go up and down completely randomly.

Pair Corralation between STMicroelectronics and PureTech Health

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the PureTech Health. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.13 times less risky than PureTech Health. The stock trades about -0.02 of its potential returns per unit of risk. The PureTech Health plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  14,200  in PureTech Health plc on September 23, 2024 and sell it today you would earn a total of  1,260  from holding PureTech Health plc or generate 8.87% return on investment over 90 days.

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

STMicroelectronics NV  vs.  PureTech Health plc

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. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PureTech Health plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PureTech Health plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, PureTech Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with STMicroelectronics and PureTech Health

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

The idea behind STMicroelectronics NV and PureTech Health plc 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.