Correlation Between NXP Semiconductors and Silicon Laboratories

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

Diversification Opportunities for NXP Semiconductors and Silicon Laboratories

0.77

Correlation Coefficient

NXP Semiconductors  Silicon Laboratories

Poor diversification

The 3 months correlation between NXP and Silicon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories 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 Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Silicon Laboratories go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Silicon Laboratories

Given the investment horizon of 90 days NXP Semiconductors NV is expected to generate 0.9 times more return on investment than Silicon Laboratories. However, NXP Semiconductors NV is 1.12 times less risky than Silicon Laboratories. It trades about 0.0 of its potential returns per unit of risk. Silicon Laboratories is currently generating about -0.01 per unit of risk. If you would invest  21,399  in NXP Semiconductors NV on December 25, 2024 and sell it today you would lose (287.00) from holding NXP Semiconductors NV or give up 1.34% of portfolio value over 90 days.

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

NXP Semiconductors NV  vs.  Silicon Laboratories

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 fairly strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Silicon Laboratories

Risk-Adjusted Performance

Very Weak

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

Pair Trading with NXP Semiconductors and Silicon Laboratories

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

The idea behind NXP Semiconductors NV and Silicon Laboratories 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.