Correlation Between Nova and STMicroelectronics

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

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

Diversification Opportunities for Nova and STMicroelectronics

0.93

Correlation Coefficient

Nova  STMicroelectronics

Almost no diversification

The 3 months correlation between Nova and STMicroelectronics is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Nova and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR and Nova 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 Nova 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 NV ADR has no effect on the direction of Nova i.e., Nova and STMicroelectronics go up and down completely randomly.

Pair Corralation between Nova and STMicroelectronics

Given the investment horizon of 90 days Nova is expected to generate 1.16 times more return on investment than STMicroelectronics. However, Nova is 1.16 times more volatile than STMicroelectronics NV ADR. It trades about 0.19 of its potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.21 per unit of risk. If you would invest  19,665  in Nova on April 25, 2025 and sell it today you would earn a total of  7,198  from holding Nova or generate 36.6% return on investment over 90 days.

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

Nova  vs.  STMicroelectronics NV ADR

Nova

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Nova demonstrated solid returns over the last few months and may actually be approaching a breakup point.

STMicroelectronics NV ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, STMicroelectronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova and STMicroelectronics

The main advantage of trading using opposite Nova and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova 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 Nova and STMicroelectronics NV ADR 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.