Correlation Between Travelers Companies and NXP Semiconductors

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

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

Diversification Opportunities for Travelers Companies and NXP Semiconductors

-0.24

Correlation Coefficient

Travelers Companies  NXP Semiconductors

Very good diversification

The 3 months correlation between Travelers and NXP is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Travelers Companies 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 The Travelers Companies 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 Travelers Companies i.e., Travelers Companies and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Travelers Companies and NXP Semiconductors

Considering the 90-day investment horizon The Travelers Companies is expected to generate 0.57 times more return on investment than NXP Semiconductors. However, The Travelers Companies is 1.77 times less risky than NXP Semiconductors. It trades about 0.11 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.04 per unit of risk. If you would invest  23,889  in The Travelers Companies on December 28, 2024 and sell it today you would earn a total of  2,290  from holding The Travelers Companies or generate 9.59% return on investment over 90 days.

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

The Travelers Companies  vs.  NXP Semiconductors NV

The Travelers Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Travelers Companies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 latest inconsistent 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.

Pair Trading with Travelers Companies and NXP Semiconductors

The main advantage of trading using opposite Travelers Companies and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies 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 The Travelers Companies 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.