Correlation Between NXP Semiconductors and Magnachip Semiconductor

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

Diversification Opportunities for NXP Semiconductors and Magnachip Semiconductor

0.85

Correlation Coefficient

NXP Semiconductors  Magnachip Semiconductor

Very poor diversification

The 3 months correlation between NXP and Magnachip is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Magnachip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnachip Semiconductor 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 Magnachip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnachip Semiconductor has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Magnachip Semiconductor go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Magnachip Semiconductor

Assuming the 90 days trading horizon NXP Semiconductors is expected to generate 1.22 times less return on investment than Magnachip Semiconductor. But when comparing it to its historical volatility, NXP Semiconductors NV is 1.32 times less risky than Magnachip Semiconductor. It trades about 0.18 of its potential returns per unit of risk. Magnachip Semiconductor is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  260.00  in Magnachip Semiconductor on April 20, 2025 and sell it today you would earn a total of  92.00  from holding Magnachip Semiconductor or generate 35.38% return on investment over 90 days.

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

NXP Semiconductors NV  vs.  Magnachip Semiconductor

NXP Semiconductors

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NXP Semiconductors unveiled solid returns over the last few months and may actually be approaching a breakup point.

Magnachip Semiconductor

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magnachip Semiconductor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Magnachip Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Magnachip Semiconductor

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

The idea behind NXP Semiconductors NV and Magnachip Semiconductor 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.