Correlation Between Renesas Electronics and Nordic Semiconductor

Can any of the company-specific risk be diversified away by investing in both Renesas Electronics and Nordic Semiconductor 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 Renesas Electronics and Nordic Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Renesas Electronics Corp and Nordic Semiconductor ASA, you can compare the effects of market volatilities on Renesas Electronics and Nordic Semiconductor 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 Renesas Electronics with a short position of Nordic Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renesas Electronics and Nordic Semiconductor.

Diversification Opportunities for Renesas Electronics and Nordic Semiconductor

0.71

Correlation Coefficient

Renesas Electronics  Nordic Semiconductor

Poor diversification

The 3 months correlation between Renesas and Nordic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics Corp and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA and Renesas Electronics 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 Renesas Electronics Corp are associated (or correlated) with Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between Renesas Electronics and Nordic Semiconductor

Assuming the 90 days horizon Renesas Electronics is expected to generate 1.7 times less return on investment than Nordic Semiconductor. But when comparing it to its historical volatility, Renesas Electronics Corp is 1.03 times less risky than Nordic Semiconductor. It trades about 0.13 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  855.00  in Nordic Semiconductor ASA on December 21, 2024 and sell it today you would earn a total of  363.00  from holding Nordic Semiconductor ASA or generate 42.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Renesas Electronics Corp  vs.  Nordic Semiconductor ASA

Renesas Electronics Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Renesas Electronics Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Renesas Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Nordic Semiconductor ASA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Nordic Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Renesas Electronics and Nordic Semiconductor

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

The idea behind Renesas Electronics Corp and Nordic Semiconductor ASA 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.