Correlation Between STMicroelectronics and NXP Semiconductors
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics 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 STMicroelectronics and NXP Semiconductors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV ADR and NXP Semiconductors NV, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of NXP Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and NXP Semiconductors.
Diversification Opportunities for STMicroelectronics and NXP Semiconductors
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between STMicroelectronics and NXP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and NXP Semiconductors go up and down completely randomly.
Pair Corralation between STMicroelectronics and NXP Semiconductors
Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the NXP Semiconductors. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV ADR is 1.02 times less risky than NXP Semiconductors. The stock trades about -0.2 of its potential returns per unit of risk. The NXP Semiconductors NV is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest 24,970 in NXP Semiconductors NV on August 29, 2024 and sell it today you would lose (2,104) from holding NXP Semiconductors NV or give up 8.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
STMicroelectronics NV ADR vs. NXP Semiconductors NV
Performance |
| Timeline |
| STMicroelectronics NV ADR |
| NXP Semiconductors |
STMicroelectronics and NXP Semiconductors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and NXP Semiconductors
The main advantage of trading using opposite STMicroelectronics and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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.| STMicroelectronics vs. NXP Semiconductors NV | STMicroelectronics vs. Analog Devices | STMicroelectronics vs. ON Semiconductor | STMicroelectronics vs. Lattice Semiconductor |
| NXP Semiconductors vs. Analog Devices | NXP Semiconductors vs. Qualcomm Incorporated | NXP Semiconductors vs. Broadcom | NXP Semiconductors vs. Microchip Technology |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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