Correlation Between NXP Semiconductors and Visa

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

Diversification Opportunities for NXP Semiconductors and Visa

0.66

Correlation Coefficient

NXP Semiconductors  Visa

Poor diversification

The 3 months correlation between NXP and Visa is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Visa go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Visa

Given the investment horizon of 90 days NXP Semiconductors NV is expected to under-perform the Visa. In addition to that, NXP Semiconductors is 2.77 times more volatile than Visa Class A. It trades about -0.05 of its total potential returns per unit of risk. Visa Class A is currently generating about -0.12 per unit of volatility. If you would invest  28,360  in Visa Class A on January 24, 2024 and sell it today you would lose (1,127) from holding Visa Class A or give up 3.97% of portfolio value over 90 days.

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

NXP Semiconductors NV  vs.  Visa Class A

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. Despite fairly strong basic indicators, NXP Semiconductors is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Visa Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with NXP Semiconductors and Visa

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

The idea behind NXP Semiconductors NV and Visa Class A 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.