Correlation Between NXP Semiconductors and Netflix

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

Diversification Opportunities for NXP Semiconductors and Netflix

0.09

Correlation Coefficient

NXP Semiconductors  Netflix

Significant diversification

The 3 months correlation between NXP and Netflix is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix 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 Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Netflix go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Netflix

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the Netflix. In addition to that, NXP Semiconductors is 1.35 times more volatile than Netflix. It trades about -0.07 of its total potential returns per unit of risk. Netflix is currently generating about -0.04 per unit of volatility. If you would invest  11,018  in Netflix on October 6, 2024 and sell it today you would lose (132.00) from holding Netflix or give up 1.2% of portfolio value over 90 days.

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

NXP Semiconductors NV  vs.  Netflix

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. 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.

Netflix

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Netflix sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Netflix

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

The idea behind NXP Semiconductors NV and Netflix 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.