Correlation Between Diodes Incorporated and NXP Semiconductors

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

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

Diversification Opportunities for Diodes Incorporated and NXP Semiconductors

0.34

Correlation Coefficient

Diodes Incorporated  NXP Semiconductors

Weak diversification

The 3 months correlation between Diodes and NXP is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Diodes Incorporated and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Diodes Incorporated 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 Diodes Incorporated 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 Diodes Incorporated i.e., Diodes Incorporated and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Diodes Incorporated and NXP Semiconductors

Given the investment horizon of 90 days Diodes Incorporated is expected to generate 1.54 times more return on investment than NXP Semiconductors. However, Diodes Incorporated is 1.54 times more volatile than NXP Semiconductors NV. It trades about 0.02 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.18 per unit of risk. If you would invest  6,131  in Diodes Incorporated on September 23, 2024 and sell it today you would earn a total of  25.00  from holding Diodes Incorporated or generate 0.41% return on investment over 90 days.

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

Diodes Incorporated  vs.  NXP Semiconductors NV

Diodes Incorporated

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Diodes Incorporated and NXP Semiconductors

The main advantage of trading using opposite Diodes Incorporated and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diodes Incorporated 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 Diodes Incorporated 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.