Correlation Between Analog Devices and ON Semiconductor

Can any of the company-specific risk be diversified away by investing in both Analog Devices and ON 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 Analog Devices and ON Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Analog Devices and ON Semiconductor, you can compare the effects of market volatilities on Analog Devices and ON 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 Analog Devices with a short position of ON Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and ON Semiconductor.

Diversification Opportunities for Analog Devices and ON Semiconductor

0.68

Correlation Coefficient

Analog Devices  ON Semiconductor

Poor diversification

The 3 months correlation between Analog and ON Semiconductor is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Analog Devices 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 Analog Devices are associated (or correlated) with ON Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON Semiconductor has no effect on the direction of Analog Devices i.e., Analog Devices and ON Semiconductor go up and down completely randomly.

Pair Corralation between Analog Devices and ON Semiconductor

Considering the 90-day investment horizon Analog Devices is expected to generate 2.72 times less return on investment than ON Semiconductor. But when comparing it to its historical volatility, Analog Devices is 1.21 times less risky than ON Semiconductor. It trades about 0.01 of its potential returns per unit of risk. ON Semiconductor is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,076  in ON Semiconductor on September 2, 2024 and sell it today you would earn a total of  36.00  from holding ON Semiconductor or generate 0.51% return on investment over 90 days.

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

Analog Devices  vs.  ON Semiconductor

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ON Semiconductor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON Semiconductor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ON Semiconductor is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Analog Devices and ON Semiconductor

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

The idea behind Analog Devices and ON 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.

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 the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.