Correlation Between NXP Semiconductors and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both NXP Semiconductors and Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale, you can compare the effects of market volatilities on NXP Semiconductors and Costco Wholesale 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 Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXP Semiconductors and Costco Wholesale.

Diversification Opportunities for NXP Semiconductors and Costco Wholesale

0.21

Correlation Coefficient

NXP Semiconductors  Costco Wholesale

Modest diversification

The 3 months correlation between NXP and Costco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Costco Wholesale go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Costco Wholesale

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the Costco Wholesale. In addition to that, NXP Semiconductors is 1.28 times more volatile than Costco Wholesale. It trades about -0.14 of its total potential returns per unit of risk. Costco Wholesale is currently generating about -0.05 per unit of volatility. If you would invest  14,732  in Costco Wholesale on October 1, 2024 and sell it today you would lose (331.00) from holding Costco Wholesale or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

NXP Semiconductors NV  vs.  Costco Wholesale

NXP Semiconductors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 2 (%) 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.

Costco Wholesale

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Costco Wholesale sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Costco Wholesale

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

The idea behind NXP Semiconductors NV and Costco Wholesale 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.