Correlation Between Advanced Micro and NXP Semiconductors

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

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

Diversification Opportunities for Advanced Micro and NXP Semiconductors

-0.3

Correlation Coefficient

Advanced Micro  NXP Semiconductors

Very good diversification

The 3 months correlation between Advanced and NXP is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Micro Devices and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Advanced Micro 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 Advanced Micro Devices 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 Advanced Micro i.e., Advanced Micro and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Advanced Micro and NXP Semiconductors

Assuming the 90 days trading horizon Advanced Micro Devices is expected to under-perform the NXP Semiconductors. In addition to that, Advanced Micro is 1.1 times more volatile than NXP Semiconductors NV. It trades about -0.04 of its total potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.04 per unit of volatility. If you would invest  63,893  in NXP Semiconductors NV on September 12, 2024 and sell it today you would earn a total of  2,499  from holding NXP Semiconductors NV or generate 3.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Advanced Micro Devices  vs.  NXP Semiconductors NV

Advanced Micro Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Micro Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NXP Semiconductors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Advanced Micro and NXP Semiconductors

The main advantage of trading using opposite Advanced Micro and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Micro 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 Advanced Micro Devices 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.