Correlation Between Vitec Software and STMicroelectronics

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

By analyzing existing cross correlation between Vitec Software Group and STMicroelectronics NV, you can compare the effects of market volatilities on Vitec Software and STMicroelectronics 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 Vitec Software with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vitec Software and STMicroelectronics.

Diversification Opportunities for Vitec Software and STMicroelectronics

0.64

Correlation Coefficient

Vitec Software  STMicroelectronics

Poor diversification

The 3 months correlation between Vitec and STMicroelectronics is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Vitec Software Group and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and Vitec Software 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 Vitec Software Group are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Vitec Software i.e., Vitec Software and STMicroelectronics go up and down completely randomly.

Pair Corralation between Vitec Software and STMicroelectronics

Assuming the 90 days trading horizon Vitec Software Group is expected to generate 1.05 times more return on investment than STMicroelectronics. However, Vitec Software is 1.05 times more volatile than STMicroelectronics NV. It trades about -0.06 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.1 per unit of risk. If you would invest  53,772  in Vitec Software Group on August 31, 2024 and sell it today you would lose (5,692) from holding Vitec Software Group or give up 10.59% of portfolio value over 90 days.

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

Vitec Software Group  vs.  STMicroelectronics NV

Vitec Software Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vitec Software Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Vitec Software and STMicroelectronics

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

The idea behind Vitec Software Group and STMicroelectronics NV 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.