Correlation Between NXP Semiconductors and Allegro Microsystems

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

Diversification Opportunities for NXP Semiconductors and Allegro Microsystems

0.84

Correlation Coefficient

NXP Semiconductors  Allegro Microsystems

Very poor diversification

The 3 months correlation between NXP and Allegro is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NXP Semiconductors NV and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems 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 Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of NXP Semiconductors i.e., NXP Semiconductors and Allegro Microsystems go up and down completely randomly.

Pair Corralation between NXP Semiconductors and Allegro Microsystems

Given the investment horizon of 90 days NXP Semiconductors is expected to generate 2.0 times less return on investment than Allegro Microsystems. But when comparing it to its historical volatility, NXP Semiconductors NV is 1.23 times less risky than Allegro Microsystems. It trades about 0.07 of its potential returns per unit of risk. Allegro Microsystems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,591  in Allegro Microsystems on April 2, 2025 and sell it today you would earn a total of  828.00  from holding Allegro Microsystems or generate 31.96% 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.  Allegro Microsystems

NXP Semiconductors

Risk-Adjusted Performance

Modest

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. Despite fairly fragile basic indicators, NXP Semiconductors demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Allegro Microsystems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allegro Microsystems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Allegro Microsystems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXP Semiconductors and Allegro Microsystems

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

The idea behind NXP Semiconductors NV and Allegro Microsystems 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.