Correlation Between ON Semiconductor and Hormel Foods

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

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

Diversification Opportunities for ON Semiconductor and Hormel Foods

0.52

Correlation Coefficient

ON Semiconductor  Hormel Foods

Very weak diversification

The 3 months correlation between O2NS34 and Hormel is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods and ON Semiconductor 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 ON Semiconductor are associated (or correlated) with Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Hormel Foods go up and down completely randomly.

Pair Corralation between ON Semiconductor and Hormel Foods

Assuming the 90 days trading horizon ON Semiconductor is expected to generate 2.0 times more return on investment than Hormel Foods. However, ON Semiconductor is 2.0 times more volatile than Hormel Foods. It trades about 0.02 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.02 per unit of risk. If you would invest  4,288  in ON Semiconductor on October 11, 2024 and sell it today you would earn a total of  162.00  from holding ON Semiconductor or generate 3.78% return on investment over 90 days.

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

ON Semiconductor  vs.  Hormel Foods

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hormel Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hormel Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hormel Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ON Semiconductor and Hormel Foods

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

The idea behind ON Semiconductor and Hormel Foods 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.