Correlation Between Silicon Laboratories and NXP Semiconductors

Can any of the company-specific risk be diversified away by investing in both Silicon Laboratories and NXP Semiconductors 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 Silicon Laboratories and NXP Semiconductors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Silicon Laboratories and NXP Semiconductors NV, you can compare the effects of market volatilities on Silicon Laboratories and NXP Semiconductors 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 Silicon Laboratories with a short position of NXP Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silicon Laboratories and NXP Semiconductors.

Diversification Opportunities for Silicon Laboratories and NXP Semiconductors

0.34

Correlation Coefficient

Silicon Laboratories  NXP Semiconductors

Weak diversification

The 3 months correlation between Silicon and NXP is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Laboratories and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Silicon Laboratories 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 Silicon Laboratories are associated (or correlated) with NXP Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXP Semiconductors has no effect on the direction of Silicon Laboratories i.e., Silicon Laboratories and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Silicon Laboratories and NXP Semiconductors

Given the investment horizon of 90 days Silicon Laboratories is expected to generate 1.44 times more return on investment than NXP Semiconductors. However, Silicon Laboratories is 1.44 times more volatile than NXP Semiconductors NV. It trades about 0.1 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.02 per unit of risk. If you would invest  11,075  in Silicon Laboratories on September 13, 2024 and sell it today you would earn a total of  1,838  from holding Silicon Laboratories or generate 16.6% return on investment over 90 days.

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

Silicon Laboratories  vs.  NXP Semiconductors NV

Silicon Laboratories

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Laboratories are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Silicon Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Silicon Laboratories and NXP Semiconductors

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

The idea behind Silicon Laboratories and NXP Semiconductors NV 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.