Correlation Between STMicroelectronics and Ross Stores

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

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

Diversification Opportunities for STMicroelectronics and Ross Stores

-0.76

Correlation Coefficient

STMicroelectronics  Ross Stores

Pay attention - limited upside

The 3 months correlation between STMicroelectronics and Ross is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Ross Stores go up and down completely randomly.

Pair Corralation between STMicroelectronics and Ross Stores

Assuming the 90 days trading horizon STMicroelectronics NV is expected to generate 1.28 times more return on investment than Ross Stores. However, STMicroelectronics is 1.28 times more volatile than Ross Stores. It trades about 0.19 of its potential returns per unit of risk. Ross Stores is currently generating about -0.08 per unit of risk. If you would invest  13,090  in STMicroelectronics NV on April 25, 2025 and sell it today you would earn a total of  4,442  from holding STMicroelectronics NV or generate 33.93% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Ross Stores

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.

Ross Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with STMicroelectronics and Ross Stores

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

The idea behind STMicroelectronics NV and Ross Stores 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..