Correlation Between NXP Semiconductors and KB Financial

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

Diversification Opportunities for NXP Semiconductors and KB Financial

0.34

Correlation Coefficient

NXP Semiconductors  KB Financial

Weak diversification

The 3 months correlation between NXP and K1BF34 is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and KB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Financial Group 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 KB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Financial Group has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and KB Financial go up and down completely randomly.

Pair Corralation between NXP Semiconductors and KB Financial

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to generate 1.1 times more return on investment than KB Financial. However, NXP Semiconductors is 1.1 times more volatile than KB Financial Group. It trades about -0.05 of its potential returns per unit of risk. KB Financial Group is currently generating about -0.08 per unit of risk. If you would invest  66,271  in NXP Semiconductors NV on December 24, 2024 and sell it today you would lose (5,818) from holding NXP Semiconductors NV or give up 8.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NXP Semiconductors NV  vs.  KB Financial Group

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 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.

KB Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days KB Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental drivers 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 KB Financial

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

The idea behind NXP Semiconductors NV and KB Financial Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.