Correlation Between Semtech and NXP Semiconductors

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

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

Diversification Opportunities for Semtech and NXP Semiconductors

-0.15

Correlation Coefficient

Semtech  NXP Semiconductors

Good diversification

The 3 months correlation between Semtech and NXP is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Semtech and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Semtech 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 Semtech 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 Semtech i.e., Semtech and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Semtech and NXP Semiconductors

Given the investment horizon of 90 days Semtech is expected to generate 1.92 times more return on investment than NXP Semiconductors. However, Semtech is 1.92 times more volatile than NXP Semiconductors NV. It trades about 0.2 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.01 per unit of risk. If you would invest  4,217  in Semtech on September 5, 2024 and sell it today you would earn a total of  2,478  from holding Semtech or generate 58.76% return on investment over 90 days.

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

Semtech  vs.  NXP Semiconductors NV

Semtech

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Semtech and NXP Semiconductors

The main advantage of trading using opposite Semtech and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Semtech 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 Semtech 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .