Correlation Between Japan Medical and NXP Semiconductors

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

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

Diversification Opportunities for Japan Medical and NXP Semiconductors

0.51

Correlation Coefficient

Japan Medical  NXP Semiconductors

Very weak diversification

The 3 months correlation between Japan and NXP is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Japan Medical Dynamic and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Japan Medical 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 Japan Medical Dynamic 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 Japan Medical i.e., Japan Medical and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Japan Medical and NXP Semiconductors

Assuming the 90 days horizon Japan Medical Dynamic is expected to under-perform the NXP Semiconductors. But the stock apears to be less risky and, when comparing its historical volatility, Japan Medical Dynamic is 1.15 times less risky than NXP Semiconductors. The stock trades about -0.05 of its potential returns per unit of risk. The NXP Semiconductors NV is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  19,658  in NXP Semiconductors NV on October 19, 2024 and sell it today you would earn a total of  1,442  from holding NXP Semiconductors NV or generate 7.34% return on investment over 90 days.

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

Japan Medical Dynamic  vs.  NXP Semiconductors NV

Japan Medical Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Medical Dynamic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Japan Medical and NXP Semiconductors

The main advantage of trading using opposite Japan Medical and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Medical 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 Japan Medical Dynamic 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.