Correlation Between NXP Semiconductors and Infosys

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

Diversification Opportunities for NXP Semiconductors and Infosys

0.23

Correlation Coefficient

NXP Semiconductors  Infosys

Modest diversification

The 3 months correlation between NXP and Infosys is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Infosys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Limited 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Limited has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Infosys go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Infosys

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 1.71 times less return on investment than Infosys. In addition to that, NXP Semiconductors is 1.43 times more volatile than Infosys Limited. It trades about 0.06 of its total potential returns per unit of risk. Infosys Limited is currently generating about 0.16 per unit of volatility. If you would invest  3,752  in Infosys Limited on September 12, 2024 and sell it today you would earn a total of  3,332  from holding Infosys Limited or generate 88.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.63%
Values	Daily Returns

NXP Semiconductors NV  vs.  Infosys Limited

NXP Semiconductors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 3 (%) 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.

Infosys Limited

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Infosys may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NXP Semiconductors and Infosys

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

The idea behind NXP Semiconductors NV and Infosys Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.