Correlation Between NXP Semiconductors and Science Applications

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

Diversification Opportunities for NXP Semiconductors and Science Applications

-0.06

Correlation Coefficient

NXP Semiconductors  Science Applications

Good diversification

The 3 months correlation between NXP and Science is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Science Applications Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Applications 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 Science Applications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Applications has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Science Applications go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Science Applications

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the Science Applications. But the stock apears to be less risky and, when comparing its historical volatility, NXP Semiconductors NV is 1.22 times less risky than Science Applications. The stock trades about -0.06 of its potential returns per unit of risk. The Science Applications International is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,464  in Science Applications International on December 28, 2024 and sell it today you would lose (564.00) from holding Science Applications International or give up 5.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

NXP Semiconductors NV  vs.  Science Applications Internati

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Science Applications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Science Applications International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Science Applications is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NXP Semiconductors and Science Applications

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

The idea behind NXP Semiconductors NV and Science Applications International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.