Correlation Between NXP Semiconductors and MetLife

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

Diversification Opportunities for NXP Semiconductors and MetLife

0.3

Correlation Coefficient

NXP Semiconductors  MetLife

Weak diversification

The 3 months correlation between NXP and MetLife is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and MetLife go up and down completely randomly.

Pair Corralation between NXP Semiconductors and MetLife

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 5.74 times less return on investment than MetLife. In addition to that, NXP Semiconductors is 1.25 times more volatile than MetLife. It trades about 0.02 of its total potential returns per unit of risk. MetLife is currently generating about 0.15 per unit of volatility. If you would invest  6,850  in MetLife on September 14, 2024 and sell it today you would earn a total of  1,134  from holding MetLife or generate 16.55% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  MetLife

NXP Semiconductors

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, NXP Semiconductors is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

MetLife

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, MetLife reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and MetLife

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

The idea behind NXP Semiconductors NV and MetLife 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.