Correlation Between CHINA BANK and NXP Semiconductors

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

By analyzing existing cross correlation between CHINA BANK ADR20 and NXP Semiconductors NV, you can compare the effects of market volatilities on CHINA BANK 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 CHINA BANK with a short position of NXP Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA BANK and NXP Semiconductors.

Diversification Opportunities for CHINA BANK and NXP Semiconductors

-0.54

Correlation Coefficient

CHINA BANK  NXP Semiconductors

Excellent diversification

The 3 months correlation between CHINA and NXP is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and CHINA BANK 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 CHINA BANK ADR20 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 CHINA BANK i.e., CHINA BANK and NXP Semiconductors go up and down completely randomly.

Pair Corralation between CHINA BANK and NXP Semiconductors

Assuming the 90 days trading horizon CHINA BANK ADR20 is expected to generate 1.14 times more return on investment than NXP Semiconductors. However, CHINA BANK is 1.14 times more volatile than NXP Semiconductors NV. It trades about 0.1 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.09 per unit of risk. If you would invest  1,357  in CHINA BANK ADR20 on October 10, 2024 and sell it today you would earn a total of  83.00  from holding CHINA BANK ADR20 or generate 6.12% return on investment over 90 days.

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

CHINA BANK ADR20  vs.  NXP Semiconductors NV

CHINA BANK ADR20

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA BANK may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 CHINA BANK and NXP Semiconductors

The main advantage of trading using opposite CHINA BANK and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA BANK 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 CHINA BANK ADR20 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.