Correlation Between NXP Semiconductors and United States

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

Diversification Opportunities for NXP Semiconductors and United States

0.29

Correlation Coefficient

NXP Semiconductors  United States

Modest diversification

The 3 months correlation between NXP and United is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and United States go up and down completely randomly.

Pair Corralation between NXP Semiconductors and United States

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 3.14 times less return on investment than United States. But when comparing it to its historical volatility, NXP Semiconductors NV is 1.14 times less risky than United States. It trades about 0.04 of its potential returns per unit of risk. United States Steel is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19,345  in United States Steel on September 12, 2024 and sell it today you would earn a total of  3,323  from holding United States Steel or generate 17.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

NXP Semiconductors NV  vs.  United States Steel

NXP Semiconductors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 3 (%) 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.

United States Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, United States sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and United States

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

The idea behind NXP Semiconductors NV and United States Steel 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.