Correlation Between STMicroelectronics and LightPath Technologies

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

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

Diversification Opportunities for STMicroelectronics and LightPath Technologies

0.86

Correlation Coefficient

STMicroelectronics  LightPath Technologies

Very poor diversification

The 3 months correlation between STMicroelectronics and LightPath is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and LightPath Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LightPath Technologies 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 ADR are associated (or correlated) with LightPath Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LightPath Technologies has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and LightPath Technologies go up and down completely randomly.

Pair Corralation between STMicroelectronics and LightPath Technologies

Considering the 90-day investment horizon STMicroelectronics is expected to generate 1.8 times less return on investment than LightPath Technologies. But when comparing it to its historical volatility, STMicroelectronics NV ADR is 1.41 times less risky than LightPath Technologies. It trades about 0.08 of its potential returns per unit of risk. LightPath Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  239.00  in LightPath Technologies on April 29, 2025 and sell it today you would earn a total of  67.00  from holding LightPath Technologies or generate 28.03% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  LightPath Technologies

STMicroelectronics NV ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, STMicroelectronics displayed solid returns over the last few months and may actually be approaching a breakup point.

LightPath Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LightPath Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, LightPath Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and LightPath Technologies

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

The idea behind STMicroelectronics NV ADR and LightPath Technologies 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.