Correlation Between STMicroelectronics and GBS Software

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

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

Diversification Opportunities for STMicroelectronics and GBS Software

0.68

Correlation Coefficient

STMicroelectronics  GBS Software

Poor diversification

The 3 months correlation between STMicroelectronics and GBS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and GBS Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GBS Software AG 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 GBS Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GBS Software AG has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and GBS Software go up and down completely randomly.

Pair Corralation between STMicroelectronics and GBS Software

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 1.11 times more return on investment than GBS Software. However, STMicroelectronics is 1.11 times more volatile than GBS Software AG. It trades about 0.25 of its potential returns per unit of risk. GBS Software AG is currently generating about 0.13 per unit of risk. If you would invest  1,800  in STMicroelectronics NV on April 22, 2025 and sell it today you would earn a total of  1,002  from holding STMicroelectronics NV or generate 55.67% return on investment over 90 days.

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

STMicroelectronics NV  vs.  GBS Software AG

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.

GBS Software AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GBS Software AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GBS Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and GBS Software

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

The idea behind STMicroelectronics NV and GBS Software AG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.