Correlation Between NXP Semiconductors and Bank of America

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

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

Diversification Opportunities for NXP Semiconductors and Bank of America

0.45

Correlation Coefficient

NXP Semiconductors  Bank of America

Very weak diversification

The 3 months correlation between NXP and Bank is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and NXP Semiconductors 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 NXP Semiconductors NV are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Bank of America go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Bank of America

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the Bank of America. In addition to that, NXP Semiconductors is 1.11 times more volatile than Bank of America. It trades about -0.09 of its total potential returns per unit of risk. Bank of America is currently generating about -0.08 per unit of volatility. If you would invest  6,770  in Bank of America on December 23, 2024 and sell it today you would lose (716.00) from holding Bank of America or give up 10.58% of portfolio value over 90 days.

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

NXP Semiconductors NV  vs.  Bank of America

NXP Semiconductors

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bank of America

Risk-Adjusted Performance

Very Weak

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

Pair Trading with NXP Semiconductors and Bank of America

The main advantage of trading using opposite NXP Semiconductors and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXP Semiconductors position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.

The idea behind NXP Semiconductors NV and Bank of America 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.