Correlation Between NVIDIA and NXP Semiconductors

Can any of the company-specific risk be diversified away by investing in both NVIDIA 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 NVIDIA and NXP Semiconductors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NVIDIA and NXP Semiconductors NV, you can compare the effects of market volatilities on NVIDIA 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 NVIDIA with a short position of NXP Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVIDIA and NXP Semiconductors.

Diversification Opportunities for NVIDIA and NXP Semiconductors

0.77

Correlation Coefficient

NVIDIA  NXP Semiconductors

Poor diversification

The 3 months correlation between NVIDIA and NXP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and NXP Semiconductors go up and down completely randomly.

Pair Corralation between NVIDIA and NXP Semiconductors

Given the investment horizon of 90 days NVIDIA is expected to under-perform the NXP Semiconductors. In addition to that, NVIDIA is 1.35 times more volatile than NXP Semiconductors NV. It trades about -0.2 of its total potential returns per unit of risk. NXP Semiconductors NV is currently generating about -0.02 per unit of volatility. If you would invest  23,906  in NXP Semiconductors NV on January 26, 2024 and sell it today you would lose (402.00) from holding NXP Semiconductors NV or give up 1.68% of portfolio value over 90 days.

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

NVIDIA  vs.  NXP Semiconductors NV

NVIDIA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

NXP Semiconductors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, NXP Semiconductors may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with NVIDIA and NXP Semiconductors

The main advantage of trading using opposite NVIDIA and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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.

The idea behind NVIDIA and NXP Semiconductors NV 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.