Correlation Between STMicroelectronics and Align Technology

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Align 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 Align 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 Align Technology, you can compare the effects of market volatilities on STMicroelectronics and Align 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 Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Align Technology.

Diversification Opportunities for STMicroelectronics and Align Technology

0.65

Correlation Coefficient

STMicroelectronics  Align Technology

Poor diversification

The 3 months correlation between STMicroelectronics and Align is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align 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 Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Align Technology go up and down completely randomly.

Pair Corralation between STMicroelectronics and Align Technology

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 0.91 times more return on investment than Align Technology. However, STMicroelectronics NV is 1.09 times less risky than Align Technology. It trades about -0.02 of its potential returns per unit of risk. Align Technology is currently generating about -0.03 per unit of risk. If you would invest  4,469  in STMicroelectronics NV on April 15, 2025 and sell it today you would lose (1,698) from holding STMicroelectronics NV or give up 38.0% of portfolio value over 90 days.

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

STMicroelectronics NV  vs.  Align Technology

STMicroelectronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, STMicroelectronics reported solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Align Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Align Technology

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

The idea behind STMicroelectronics NV and Align 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.