Correlation Between CHINA EDUCATION and NXP Semiconductors

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

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

Diversification Opportunities for CHINA EDUCATION and NXP Semiconductors

0.39

Correlation Coefficient

CHINA EDUCATION  NXP Semiconductors

Weak diversification

The 3 months correlation between CHINA and NXP is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CHINA EDUCATION GROUP and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and CHINA EDUCATION 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 CHINA EDUCATION GROUP 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 CHINA EDUCATION i.e., CHINA EDUCATION and NXP Semiconductors go up and down completely randomly.

Pair Corralation between CHINA EDUCATION and NXP Semiconductors

Assuming the 90 days horizon CHINA EDUCATION GROUP is expected to under-perform the NXP Semiconductors. In addition to that, CHINA EDUCATION is 1.64 times more volatile than NXP Semiconductors NV. It trades about -0.19 of its total potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.1 per unit of volatility. If you would invest  22,495  in NXP Semiconductors NV on September 26, 2024 and sell it today you would lose (2,295) from holding NXP Semiconductors NV or give up 10.2% of portfolio value over 90 days.

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

CHINA EDUCATION GROUP  vs.  NXP Semiconductors NV

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA EDUCATION GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NXP Semiconductors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NXP Semiconductors NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NXP Semiconductors is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CHINA EDUCATION and NXP Semiconductors

The main advantage of trading using opposite CHINA EDUCATION and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA EDUCATION 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 CHINA EDUCATION GROUP 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.