Correlation Between MagnaChip Semiconductor and NXP Semiconductors

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

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

Diversification Opportunities for MagnaChip Semiconductor and NXP Semiconductors

0.36

Correlation Coefficient

MagnaChip Semiconductor  NXP Semiconductors

Weak diversification

The 3 months correlation between MagnaChip and NXP is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor Corp and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and NXP Semiconductors go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and NXP Semiconductors

Assuming the 90 days trading horizon MagnaChip Semiconductor Corp is expected to under-perform the NXP Semiconductors. In addition to that, MagnaChip Semiconductor is 1.55 times more volatile than NXP Semiconductors NV. It trades about -0.06 of its total potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.02 per unit of volatility. If you would invest  20,803  in NXP Semiconductors NV on September 22, 2024 and sell it today you would lose (803.00) from holding NXP Semiconductors NV or give up 3.86% of portfolio value over 90 days.

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

MagnaChip Semiconductor Corp  vs.  NXP Semiconductors NV

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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. In spite of comparatively stable basic indicators, NXP Semiconductors is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MagnaChip Semiconductor and NXP Semiconductors

The main advantage of trading using opposite MagnaChip Semiconductor and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.