Correlation Between China Merchants and ON SEMICONDUCTOR

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

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

Diversification Opportunities for China Merchants and ON SEMICONDUCTOR

-0.92

Correlation Coefficient

China Merchants  ON SEMICONDUCTOR

Pay attention - limited upside

The 3 months correlation between China and XS4 is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and ON SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON SEMICONDUCTOR and China Merchants 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 China Merchants Bank 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 China Merchants i.e., China Merchants and ON SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between China Merchants and ON SEMICONDUCTOR

Assuming the 90 days horizon China Merchants Bank is expected to generate 0.61 times more return on investment than ON SEMICONDUCTOR. However, China Merchants Bank is 1.63 times less risky than ON SEMICONDUCTOR. It trades about 0.25 of its potential returns per unit of risk. ON SEMICONDUCTOR is currently generating about -0.21 per unit of risk. If you would invest  430.00  in China Merchants Bank on December 1, 2024 and sell it today you would earn a total of  128.00  from holding China Merchants Bank or generate 29.77% return on investment over 90 days.

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

China Merchants Bank  vs.  ON SEMICONDUCTOR

China Merchants Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

ON SEMICONDUCTOR

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with China Merchants and ON SEMICONDUCTOR

The main advantage of trading using opposite China Merchants and ON SEMICONDUCTOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants 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 China Merchants Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.