Correlation Between NXP Semiconductors and Vipshop Holdings

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

Diversification Opportunities for NXP Semiconductors and Vipshop Holdings

0.01

Correlation Coefficient

NXP Semiconductors  Vipshop Holdings

Significant diversification

The 3 months correlation between NXP and Vipshop is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Vipshop Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vipshop Holdings 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 Vipshop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vipshop Holdings has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Vipshop Holdings go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Vipshop Holdings

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 2.24 times less return on investment than Vipshop Holdings. But when comparing it to its historical volatility, NXP Semiconductors NV is 1.31 times less risky than Vipshop Holdings. It trades about 0.07 of its potential returns per unit of risk. Vipshop Holdings Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,460  in Vipshop Holdings Limited on September 5, 2024 and sell it today you would earn a total of  731.00  from holding Vipshop Holdings Limited or generate 21.13% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  Vipshop Holdings Limited

NXP Semiconductors

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NXP Semiconductors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vipshop Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vipshop Holdings Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Vipshop Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Vipshop Holdings

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

The idea behind NXP Semiconductors NV and Vipshop Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.