Correlation Between NXP Semiconductors and Gold Fields

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

Diversification Opportunities for NXP Semiconductors and Gold Fields

0.75

Correlation Coefficient

NXP Semiconductors  Gold Fields

Poor diversification

The 3 months correlation between NXP and Gold is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Gold Fields Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Fields 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 Gold Fields. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Fields has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Gold Fields go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Gold Fields

Given the investment horizon of 90 days NXP Semiconductors NV is expected to under-perform the Gold Fields. But the stock apears to be less risky and, when comparing its historical volatility, NXP Semiconductors NV is 1.36 times less risky than Gold Fields. The stock trades about -0.28 of its potential returns per unit of risk. The Gold Fields Ltd is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Gold Fields Ltd on October 4, 2024 and sell it today you would lose (44.00) from holding Gold Fields Ltd or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

NXP Semiconductors NV  vs.  Gold Fields Ltd

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 inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Gold Fields

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Fields Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with NXP Semiconductors and Gold Fields

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

The idea behind NXP Semiconductors NV and Gold Fields Ltd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.