Correlation Between General Electric and Nxp Semiconductors

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

Diversification Opportunities for General Electric and Nxp Semiconductors

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between General and Nxp Semiconductors is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Nxp Semiconductors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nxp Semiconductors and General Electric 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 Electric 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 Electric i.e., General Electric and Nxp Semiconductors go up and down completely randomly.

Pair Corralation between General Electric and Nxp Semiconductors

Allowing for the 90-day total investment horizon General Electric is expected to under-perform the Nxp Semiconductors. But the stock apears to be less risky and, when comparing its historical volatility, General Electric is 1.25 times less risky than Nxp Semiconductors. The stock trades about -0.05 of its potential returns per unit of risk. The Nxp Semiconductors is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  21,002  in Nxp Semiconductors on May 11, 2022 and sell it today you would lose (3,006)  from holding Nxp Semiconductors or give up 14.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Nxp Semiconductors

 Performance (%) 
       Timeline  
General Electric 
General Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, General Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

General Price Channel

Nxp Semiconductors 
Nxp Semiconductors Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nxp Semiconductors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Nxp Semiconductors may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Nxp Semiconductors Price Channel

General Electric and Nxp Semiconductors Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Nxp Semiconductors

The main advantage of trading using opposite General Electric and Nxp Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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 General Electric and Nxp Semiconductors 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.
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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