Correlation Between NXP Semiconductors and Rio Tinto

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

Diversification Opportunities for NXP Semiconductors and Rio Tinto

-0.33

Correlation Coefficient

NXP Semiconductors  Rio Tinto

Very good diversification

The 3 months correlation between NXP and Rio is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Rio Tinto go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Rio Tinto

Assuming the 90 days trading horizon NXP Semiconductors NV is expected to generate 1.13 times more return on investment than Rio Tinto. However, NXP Semiconductors is 1.13 times more volatile than Rio Tinto Group. It trades about 0.07 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.03 per unit of risk. If you would invest  16,970  in NXP Semiconductors NV on April 25, 2025 and sell it today you would earn a total of  1,580  from holding NXP Semiconductors NV or generate 9.31% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  Rio Tinto Group

NXP Semiconductors

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NXP Semiconductors may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Rio Tinto Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Rio Tinto 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 Rio Tinto

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

The idea behind NXP Semiconductors NV and Rio Tinto Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.