Correlation Between GP Investments and NXP Semiconductors

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

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

Diversification Opportunities for GP Investments and NXP Semiconductors

-0.31

Correlation Coefficient

GP Investments  NXP Semiconductors

Very good diversification

The 3 months correlation between GPIV33 and NXP is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding GP Investments and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and GP Investments 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 GP Investments 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 GP Investments i.e., GP Investments and NXP Semiconductors go up and down completely randomly.

Pair Corralation between GP Investments and NXP Semiconductors

Assuming the 90 days trading horizon GP Investments is expected to generate 1.11 times less return on investment than NXP Semiconductors. In addition to that, GP Investments is 1.13 times more volatile than NXP Semiconductors NV. It trades about 0.05 of its total potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.06 per unit of volatility. If you would invest  42,388  in NXP Semiconductors NV on September 24, 2024 and sell it today you would earn a total of  21,868  from holding NXP Semiconductors NV or generate 51.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	69.29%
Values	Daily Returns

GP Investments  vs.  NXP Semiconductors NV

GP Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GP Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, GP Investments 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

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 1 (%) 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 GP Investments and NXP Semiconductors

The main advantage of trading using opposite GP Investments and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GP Investments 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 GP Investments 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.