Correlation Between Prudential Financial and NXP Semiconductors

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

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

Diversification Opportunities for Prudential Financial and NXP Semiconductors

0.43

Correlation Coefficient

Prudential Financial  NXP Semiconductors

Very weak diversification

The 3 months correlation between Prudential and NXP is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Prudential Financial 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 Prudential Financial 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 Prudential Financial i.e., Prudential Financial and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Prudential Financial and NXP Semiconductors

Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.69 times more return on investment than NXP Semiconductors. However, Prudential Financial is 1.45 times less risky than NXP Semiconductors. It trades about 0.18 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.06 per unit of risk. If you would invest  32,340  in Prudential Financial on September 20, 2024 and sell it today you would earn a total of  6,150  from holding Prudential Financial or generate 19.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Prudential Financial  vs.  NXP Semiconductors NV

Prudential Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Prudential Financial and NXP Semiconductors

The main advantage of trading using opposite Prudential Financial and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial 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 Prudential Financial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.