Correlation Between Align Technology and NXP Semiconductors

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

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

Diversification Opportunities for Align Technology and NXP Semiconductors

-0.03

Correlation Coefficient

Align Technology  NXP Semiconductors

Good diversification

The 3 months correlation between Align and NXP is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Align Technology 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 Align Technology are associated (or correlated) with NXP Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXP Semiconductors has no effect on the direction of Align Technology i.e., Align Technology and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Align Technology and NXP Semiconductors

Assuming the 90 days trading horizon Align Technology is expected to under-perform the NXP Semiconductors. But the stock apears to be less risky and, when comparing its historical volatility, Align Technology is 1.44 times less risky than NXP Semiconductors. The stock trades about -0.01 of its potential returns per unit of risk. The NXP Semiconductors NV is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  63,883  in NXP Semiconductors NV on September 25, 2024 and sell it today you would earn a total of  2,084  from holding NXP Semiconductors NV or generate 3.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Align Technology  vs.  NXP Semiconductors NV

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NXP Semiconductors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Align Technology and NXP Semiconductors

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

The idea behind Align Technology and NXP Semiconductors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.