Correlation Between Arm Holdings and STMicroelectronics

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Can any of the company-specific risk be diversified away by investing in both Arm Holdings and STMicroelectronics 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 Arm Holdings and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arm Holdings plc and STMicroelectronics NV, you can compare the effects of market volatilities on Arm Holdings and STMicroelectronics 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 Arm Holdings with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arm Holdings and STMicroelectronics.

Diversification Opportunities for Arm Holdings and STMicroelectronics

0.65
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Arm Holdings and STMicroelectronics

Considering the 90-day investment horizon Arm Holdings is expected to generate 1.02 times less return on investment than STMicroelectronics. But when comparing it to its historical volatility, Arm Holdings plc is 1.12 times less risky than STMicroelectronics. It trades about 0.28 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,987  in STMicroelectronics NV on April 21, 2025 and sell it today you would earn a total of  1,254  from holding STMicroelectronics NV or generate 63.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Arm Holdings plc  vs.  STMicroelectronics NV

 Performance 
       Timeline  
Arm Holdings plc 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Arm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.
STMicroelectronics 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, STMicroelectronics reported solid returns over the last few months and may actually be approaching a breakup point.

Arm Holdings and STMicroelectronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arm Holdings and STMicroelectronics

The main advantage of trading using opposite Arm Holdings and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.
The idea behind Arm Holdings plc and STMicroelectronics NV 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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