Correlation Between NXP Semiconductors and ChipMOS Technologies

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

Diversification Opportunities for NXP Semiconductors and ChipMOS Technologies

0.65

Correlation Coefficient

NXP Semiconductors  ChipMOS Technologies

Poor diversification

The 3 months correlation between NXP and ChipMOS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and ChipMOS Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChipMOS Technologies 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 ChipMOS Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChipMOS Technologies has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and ChipMOS Technologies go up and down completely randomly.

Pair Corralation between NXP Semiconductors and ChipMOS Technologies

Given the investment horizon of 90 days NXP Semiconductors NV is expected to generate 1.43 times more return on investment than ChipMOS Technologies. However, NXP Semiconductors is 1.43 times more volatile than ChipMOS Technologies. It trades about -0.01 of its potential returns per unit of risk. ChipMOS Technologies is currently generating about -0.16 per unit of risk. If you would invest  22,514  in NXP Semiconductors NV on September 12, 2024 and sell it today you would lose (530.00) from holding NXP Semiconductors NV or give up 2.35% of portfolio value over 90 days.

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

NXP Semiconductors NV  vs.  ChipMOS Technologies

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. Despite fairly strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ChipMOS Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChipMOS Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NXP Semiconductors and ChipMOS Technologies

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

The idea behind NXP Semiconductors NV and ChipMOS Technologies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.