Correlation Between NXP Semiconductors and CHINA BANK

Can any of the company-specific risk be diversified away by investing in both NXP Semiconductors and CHINA BANK 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 CHINA BANK 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 CHINA BANK ADR20, you can compare the effects of market volatilities on NXP Semiconductors and CHINA BANK 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 CHINA BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXP Semiconductors and CHINA BANK.

Diversification Opportunities for NXP Semiconductors and CHINA BANK

-0.62

Correlation Coefficient

NXP Semiconductors  CHINA BANK

Excellent diversification

The 3 months correlation between NXP and CHINA is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and CHINA BANK ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA BANK ADR20 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 CHINA BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA BANK ADR20 has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and CHINA BANK go up and down completely randomly.

Pair Corralation between NXP Semiconductors and CHINA BANK

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to under-perform the CHINA BANK. But the stock apears to be less risky and, when comparing its historical volatility, NXP Semiconductors NV is 1.75 times less risky than CHINA BANK. The stock trades about -0.04 of its potential returns per unit of risk. The CHINA BANK ADR20 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,386  in CHINA BANK ADR20 on October 10, 2024 and sell it today you would earn a total of  54.00  from holding CHINA BANK ADR20 or generate 3.9% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  CHINA BANK ADR20

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. In spite of comparatively stable basic indicators, NXP Semiconductors is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CHINA BANK ADR20

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA BANK may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NXP Semiconductors and CHINA BANK

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

The idea behind NXP Semiconductors NV and CHINA BANK ADR20 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.