Correlation Between ON Semiconductor and MP Materials

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

By analyzing existing cross correlation between ON Semiconductor and MP Materials Corp, you can compare the effects of market volatilities on ON Semiconductor and MP Materials 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 MP Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of ON Semiconductor and MP Materials.

Diversification Opportunities for ON Semiconductor and MP Materials

0.41

Correlation Coefficient

ON Semiconductor  MP Materials

Very weak diversification

The 3 months correlation between O2NS34 and M2PM34 is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and MP Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MP Materials Corp 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 MP Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MP Materials Corp has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and MP Materials go up and down completely randomly.

Pair Corralation between ON Semiconductor and MP Materials

Assuming the 90 days trading horizon ON Semiconductor is expected to generate 2.94 times less return on investment than MP Materials. But when comparing it to its historical volatility, ON Semiconductor is 1.64 times less risky than MP Materials. It trades about 0.03 of its potential returns per unit of risk. MP Materials Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,858  in MP Materials Corp on October 8, 2024 and sell it today you would earn a total of  120.00  from holding MP Materials Corp or generate 6.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

ON Semiconductor  vs.  MP Materials Corp

ON Semiconductor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON Semiconductor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ON Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MP Materials Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ON Semiconductor and MP Materials

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

The idea behind ON Semiconductor and MP Materials Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.