Correlation Between STMicroelectronics and Lam Research

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

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

Diversification Opportunities for STMicroelectronics and Lam Research

0.78

Correlation Coefficient

STMicroelectronics  Lam Research

Poor diversification

The 3 months correlation between STMicroelectronics and Lam is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Lam Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Lam Research go up and down completely randomly.

Pair Corralation between STMicroelectronics and Lam Research

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 0.76 times more return on investment than Lam Research. However, STMicroelectronics NV is 1.31 times less risky than Lam Research. It trades about 0.22 of its potential returns per unit of risk. Lam Research is currently generating about 0.15 per unit of risk. If you would invest  16,432  in STMicroelectronics NV on April 24, 2025 and sell it today you would earn a total of  1,100  from holding STMicroelectronics NV or generate 6.69% 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.  Lam Research

STMicroelectronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, STMicroelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Lam Research

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lam Research sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Lam Research

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

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