Correlation Between Texas Instruments and NXP Semiconductors

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

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

Diversification Opportunities for Texas Instruments and NXP Semiconductors

0.4

Correlation Coefficient

Texas Instruments  NXP Semiconductors

Very weak diversification

The 3 months correlation between Texas and NXP is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Texas Instruments Incorporated and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Texas Instruments 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 Texas Instruments Incorporated 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 Texas Instruments i.e., Texas Instruments and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Texas Instruments and NXP Semiconductors

Assuming the 90 days trading horizon Texas Instruments Incorporated is expected to generate 1.09 times more return on investment than NXP Semiconductors. However, Texas Instruments is 1.09 times more volatile than NXP Semiconductors NV. It trades about -0.01 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.13 per unit of risk. If you would invest  7,824  in Texas Instruments Incorporated on October 8, 2024 and sell it today you would lose (63.00) from holding Texas Instruments Incorporated or give up 0.81% of portfolio value over 90 days.

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

Texas Instruments Incorporated  vs.  NXP Semiconductors NV

Texas Instruments

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Instruments Incorporated are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Texas Instruments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 somewhat strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Texas Instruments and NXP Semiconductors

The main advantage of trading using opposite Texas Instruments and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Instruments 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 Texas Instruments Incorporated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..