Correlation Between NXP Semiconductors and STMicroelectronics

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

Diversification Opportunities for NXP Semiconductors and STMicroelectronics

0.7

Correlation Coefficient

NXP Semiconductors  STMicroelectronics

Poor diversification

The 3 months correlation between NXP and STMicroelectronics is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and STMicroelectronics NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics NV ADR 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics NV ADR has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and STMicroelectronics go up and down completely randomly.

Pair Corralation between NXP Semiconductors and STMicroelectronics

Given the investment horizon of 90 days NXP Semiconductors NV is expected to under-perform the STMicroelectronics. In addition to that, NXP Semiconductors is 1.12 times more volatile than STMicroelectronics NV ADR. It trades about -0.05 of its total potential returns per unit of risk. STMicroelectronics NV ADR is currently generating about 0.05 per unit of volatility. If you would invest  2,587  in STMicroelectronics NV ADR on September 14, 2024 and sell it today you would earn a total of  36.00  from holding STMicroelectronics NV ADR or generate 1.39% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  STMicroelectronics NV ADR

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.

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NXP Semiconductors and STMicroelectronics

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

The idea behind NXP Semiconductors NV and STMicroelectronics NV ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.