Correlation Between STMicroelectronics and Zoom Video

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

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

Diversification Opportunities for STMicroelectronics and Zoom Video

-0.25

Correlation Coefficient

STMicroelectronics  Zoom Video

Very good diversification

The 3 months correlation between STMicroelectronics and Zoom is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Zoom Video Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoom Video Communications 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 Zoom Video. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoom Video Communications has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Zoom Video go up and down completely randomly.

Pair Corralation between STMicroelectronics and Zoom Video

Assuming the 90 days trading horizon STMicroelectronics is expected to generate 1.14 times less return on investment than Zoom Video. But when comparing it to its historical volatility, STMicroelectronics NV is 1.86 times less risky than Zoom Video. It trades about 0.4 of its potential returns per unit of risk. Zoom Video Communications is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,784  in Zoom Video Communications on September 20, 2024 and sell it today you would earn a total of  269.00  from holding Zoom Video Communications or generate 15.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

STMicroelectronics NV  vs.  Zoom Video Communications

STMicroelectronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, STMicroelectronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Zoom Video Communications

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zoom Video Communications are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zoom Video sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Zoom Video

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

The idea behind STMicroelectronics NV and Zoom Video Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.