Correlation Between Unity Software and NXP Semiconductors

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

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

Diversification Opportunities for Unity Software and NXP Semiconductors

-0.36

Correlation Coefficient

Unity Software  NXP Semiconductors

Very good diversification

The 3 months correlation between Unity and NXP is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software and NXP Semiconductors NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXP Semiconductors and Unity Software 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 Unity Software 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 Unity Software i.e., Unity Software and NXP Semiconductors go up and down completely randomly.

Pair Corralation between Unity Software and NXP Semiconductors

Taking into account the 90-day investment horizon Unity Software is expected to under-perform the NXP Semiconductors. But the stock apears to be less risky and, when comparing its historical volatility, Unity Software is 1.11 times less risky than NXP Semiconductors. The stock trades about -0.2 of its potential returns per unit of risk. The NXP Semiconductors NV is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  24,628  in NXP Semiconductors NV on January 29, 2024 and sell it today you would lose (358.00) from holding NXP Semiconductors NV or give up 1.45% of portfolio value over 90 days.

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

Unity Software  vs.  NXP Semiconductors NV

Unity Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NXP Semiconductors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NXP Semiconductors NV are ranked lower than 7 (%) 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 Unity Software and NXP Semiconductors

The main advantage of trading using opposite Unity Software and NXP Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Software 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 Unity Software 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.