Correlation Between NXP Semiconductors and British American
Can any of the company-specific risk be diversified away by investing in both NXP Semiconductors and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on NXP Semiconductors and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXP Semiconductors and British American.
Diversification Opportunities for NXP Semiconductors and British American
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between NXP and British is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and British American go up and down completely randomly.
Pair Corralation between NXP Semiconductors and British American
Assuming the 90 days trading horizon NXP Semiconductors NV is expected to generate 2.03 times more return on investment than British American. However, NXP Semiconductors is 2.03 times more volatile than British American Tobacco. It trades about 0.03 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.06 per unit of risk. If you would invest 64,140 in NXP Semiconductors NV on August 26, 2024 and sell it today you would earn a total of 1,297 from holding NXP Semiconductors NV or generate 2.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NXP Semiconductors NV vs. British American Tobacco
Performance |
| Timeline |
| NXP Semiconductors |
| British American Tobacco |
NXP Semiconductors and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NXP Semiconductors and British American
The main advantage of trading using opposite NXP Semiconductors and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXP Semiconductors position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| NXP Semiconductors vs. Taiwan Semiconductor Manufacturing | NXP Semiconductors vs. Broadcom | NXP Semiconductors vs. STMicroelectronics NV |
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Check out your portfolio center.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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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