Correlation Between Hormel Foods and ON Semiconductor

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

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

Diversification Opportunities for Hormel Foods and ON Semiconductor

0.23

Correlation Coefficient

Hormel Foods  ON Semiconductor

Modest diversification

The 3 months correlation between Hormel and O2NS34 is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Hormel Foods and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Hormel Foods 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 Hormel Foods 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 Hormel Foods i.e., Hormel Foods and ON Semiconductor go up and down completely randomly.

Pair Corralation between Hormel Foods and ON Semiconductor

Assuming the 90 days trading horizon Hormel Foods is expected to generate 0.42 times more return on investment than ON Semiconductor. However, Hormel Foods is 2.37 times less risky than ON Semiconductor. It trades about -0.36 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.33 per unit of risk. If you would invest  19,773  in Hormel Foods on October 26, 2024 and sell it today you would lose (1,701) from holding Hormel Foods or give up 8.6% of portfolio value over 90 days.

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

Hormel Foods  vs.  ON Semiconductor

Hormel Foods

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hormel Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hormel Foods and ON Semiconductor

The main advantage of trading using opposite Hormel Foods and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hormel Foods 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 Hormel Foods 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.