Correlation Between NXP Semiconductors and Wolfspeed

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

Diversification Opportunities for NXP Semiconductors and Wolfspeed

0.49

Correlation Coefficient

NXP Semiconductors  Wolfspeed

Very weak diversification

The 3 months correlation between NXP and Wolfspeed is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Wolfspeed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wolfspeed 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 Wolfspeed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wolfspeed has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Wolfspeed go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Wolfspeed

Given the investment horizon of 90 days NXP Semiconductors NV is expected to generate 0.38 times more return on investment than Wolfspeed. However, NXP Semiconductors NV is 2.66 times less risky than Wolfspeed. It trades about 0.04 of its potential returns per unit of risk. Wolfspeed is currently generating about -0.05 per unit of risk. If you would invest  16,340  in NXP Semiconductors NV on August 30, 2024 and sell it today you would earn a total of  6,313  from holding NXP Semiconductors NV or generate 38.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

NXP Semiconductors NV  vs.  Wolfspeed

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 recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Wolfspeed

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wolfspeed are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Wolfspeed reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Wolfspeed

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

The idea behind NXP Semiconductors NV and Wolfspeed 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.