Correlation Between Alpha and ON Semiconductor

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

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

Diversification Opportunities for Alpha and ON Semiconductor

0.45

Correlation Coefficient

Alpha  ON Semiconductor

Very weak diversification

The 3 months correlation between Alpha and ON Semiconductor is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alpha and Omega and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Alpha 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 Alpha and Omega 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 Alpha i.e., Alpha and ON Semiconductor go up and down completely randomly.

Pair Corralation between Alpha and ON Semiconductor

Given the investment horizon of 90 days Alpha and Omega is expected to generate 2.51 times more return on investment than ON Semiconductor. However, Alpha is 2.51 times more volatile than ON Semiconductor. It trades about -0.01 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.05 per unit of risk. If you would invest  4,181  in Alpha and Omega on August 30, 2024 and sell it today you would lose (576.00) from holding Alpha and Omega or give up 13.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Alpha and Omega  vs.  ON Semiconductor

Alpha and Omega

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alpha and Omega has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Alpha is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

ON Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ON Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Alpha and ON Semiconductor

The main advantage of trading using opposite Alpha and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alpha 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 Alpha and Omega 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.