Correlation Between NXP Semiconductors and QUALCOMM Incorporated

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

Diversification Opportunities for NXP Semiconductors and QUALCOMM Incorporated

0.4

Correlation Coefficient

NXP Semiconductors  QUALCOMM Incorporated

Very weak diversification

The 3 months correlation between NXP and QUALCOMM is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and QUALCOMM Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QUALCOMM Incorporated 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 QUALCOMM Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QUALCOMM Incorporated has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and QUALCOMM Incorporated go up and down completely randomly.

Pair Corralation between NXP Semiconductors and QUALCOMM Incorporated

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 1.15 times less return on investment than QUALCOMM Incorporated. But when comparing it to its historical volatility, NXP Semiconductors NV is 1.11 times less risky than QUALCOMM Incorporated. It trades about 0.04 of its potential returns per unit of risk. QUALCOMM Incorporated is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  10,708  in QUALCOMM Incorporated on October 11, 2024 and sell it today you would earn a total of  4,730  from holding QUALCOMM Incorporated or generate 44.17% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  QUALCOMM Incorporated

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.

QUALCOMM Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QUALCOMM Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, QUALCOMM Incorporated is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NXP Semiconductors and QUALCOMM Incorporated

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

The idea behind NXP Semiconductors NV and QUALCOMM Incorporated 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.