Correlation Between NXP Semiconductors and Seagate Technology

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

Diversification Opportunities for NXP Semiconductors and Seagate Technology

0.3

Correlation Coefficient

NXP Semiconductors  Seagate Technology

Weak diversification

The 3 months correlation between NXP and Seagate is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Seagate Technology Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seagate Technology 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 Seagate Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seagate Technology has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Seagate Technology go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Seagate Technology

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the Seagate Technology. But the stock apears to be less risky and, when comparing its historical volatility, NXP Semiconductors NV is 1.62 times less risky than Seagate Technology. The stock trades about -0.07 of its potential returns per unit of risk. The Seagate Technology Holdings is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  54,609  in Seagate Technology Holdings on October 26, 2024 and sell it today you would earn a total of  8,891  from holding Seagate Technology Holdings or generate 16.28% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  Seagate Technology Holdings

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 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.

Seagate Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagate Technology Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Seagate Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NXP Semiconductors and Seagate Technology

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

The idea behind NXP Semiconductors NV and Seagate Technology Holdings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.