Correlation Between NXP Semiconductors and Sumitomo Mitsui

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

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

Diversification Opportunities for NXP Semiconductors and Sumitomo Mitsui

0.3

Correlation Coefficient

NXP Semiconductors  Sumitomo Mitsui

Weak diversification

The 3 months correlation between NXP and Sumitomo is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial and NXP Semiconductors 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 NXP Semiconductors NV are associated (or correlated) with Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Financial has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Sumitomo Mitsui

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 3.25 times less return on investment than Sumitomo Mitsui. In addition to that, NXP Semiconductors is 1.18 times more volatile than Sumitomo Mitsui Financial. It trades about 0.06 of its total potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.23 per unit of volatility. If you would invest  6,881  in Sumitomo Mitsui Financial on September 20, 2024 and sell it today you would earn a total of  2,146  from holding Sumitomo Mitsui Financial or generate 31.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

NXP Semiconductors NV  vs.  Sumitomo Mitsui Financial

NXP Semiconductors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NXP Semiconductors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Sumitomo Mitsui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Sumitomo Mitsui

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

The idea behind NXP Semiconductors NV and Sumitomo Mitsui Financial 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.