Correlation Between STMicroelectronics and Monolithic Power

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and Monolithic Power 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 Monolithic Power 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 Monolithic Power Systems, you can compare the effects of market volatilities on STMicroelectronics and Monolithic Power 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 Monolithic Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Monolithic Power.

Diversification Opportunities for STMicroelectronics and Monolithic Power

-0.19

Correlation Coefficient

STMicroelectronics  Monolithic Power

Good diversification

The 3 months correlation between STMicroelectronics and Monolithic is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Monolithic Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monolithic Power Systems 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 Monolithic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monolithic Power Systems has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and Monolithic Power go up and down completely randomly.

Pair Corralation between STMicroelectronics and Monolithic Power

Considering the 90-day investment horizon STMicroelectronics is expected to generate 1.96 times less return on investment than Monolithic Power. In addition to that, STMicroelectronics is 1.26 times more volatile than Monolithic Power Systems. It trades about 0.06 of its total potential returns per unit of risk. Monolithic Power Systems is currently generating about 0.14 per unit of volatility. If you would invest  68,407  in Monolithic Power Systems on May 26, 2025 and sell it today you would earn a total of  15,993  from holding Monolithic Power Systems or generate 23.38% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  Monolithic Power Systems

STMicroelectronics NV ADR

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in STMicroelectronics NV ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, STMicroelectronics may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Monolithic Power Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monolithic Power Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Monolithic Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STMicroelectronics and Monolithic Power

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

The idea behind STMicroelectronics NV ADR and Monolithic Power Systems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.