Correlation Between Microchip Technology and ON Semiconductor

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

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

Diversification Opportunities for Microchip Technology and ON Semiconductor

0.67

Correlation Coefficient

Microchip Technology  ON Semiconductor

Poor diversification

The 3 months correlation between Microchip and ON Semiconductor is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Microchip Technology 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 Microchip Technology 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 Microchip Technology i.e., Microchip Technology and ON Semiconductor go up and down completely randomly.

Pair Corralation between Microchip Technology and ON Semiconductor

Given the investment horizon of 90 days Microchip Technology is expected to under-perform the ON Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 1.09 times less risky than ON Semiconductor. The stock trades about -0.11 of its potential returns per unit of risk. The ON Semiconductor is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,787  in ON Semiconductor on August 30, 2024 and sell it today you would lose (752.00) from holding ON Semiconductor or give up 9.66% of portfolio value over 90 days.

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

Microchip Technology  vs.  ON Semiconductor

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail 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 Microchip Technology and ON Semiconductor

The main advantage of trading using opposite Microchip Technology and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology 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 Microchip Technology 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.