Correlation Between General Dynamics and NXP Semiconductors
Can any of the company-specific risk be diversified away by investing in both General Dynamics 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 General Dynamics and NXP Semiconductors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Dynamics and NXP Semiconductors NV, you can compare the effects of market volatilities on General Dynamics 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 General Dynamics with a short position of NXP Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Dynamics and NXP Semiconductors.
Diversification Opportunities for General Dynamics and NXP Semiconductors
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between General and NXP is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and NXP Semiconductors go up and down completely randomly.
Pair Corralation between General Dynamics and NXP Semiconductors
Assuming the 90 days trading horizon General Dynamics is expected to generate 1.63 times less return on investment than NXP Semiconductors. But when comparing it to its historical volatility, General Dynamics is 1.7 times less risky than NXP Semiconductors. It trades about 0.06 of its potential returns per unit of risk. NXP Semiconductors NV is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 43,676 in NXP Semiconductors NV on February 15, 2024 and sell it today you would earn a total of 25,038 from holding NXP Semiconductors NV or generate 57.33% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 96.06% |
Values | Daily Returns |
General Dynamics vs. NXP Semiconductors NV
Performance |
Timeline |
General Dynamics |
NXP Semiconductors |
General Dynamics and NXP Semiconductors Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with General Dynamics and NXP Semiconductors
The main advantage of trading using opposite General Dynamics and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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.General Dynamics vs. Cognizant Technology Solutions | General Dynamics vs. Spotify Technology SA | General Dynamics vs. Telecomunicaes Brasileiras SA | General Dynamics vs. Unity Software |
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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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