Correlation Between ON Semiconductor and Starbucks

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

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

Diversification Opportunities for ON Semiconductor and Starbucks

0.2

Correlation Coefficient

ON Semiconductor  Starbucks

Modest diversification

The 3 months correlation between O2NS34 and Starbucks is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks 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 Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Starbucks go up and down completely randomly.

Pair Corralation between ON Semiconductor and Starbucks

Assuming the 90 days trading horizon ON Semiconductor is expected to under-perform the Starbucks. In addition to that, ON Semiconductor is 2.32 times more volatile than Starbucks. It trades about -0.33 of its total potential returns per unit of risk. Starbucks is currently generating about 0.12 per unit of volatility. If you would invest  56,739  in Starbucks on October 25, 2024 and sell it today you would earn a total of  1,518  from holding Starbucks or generate 2.68% return on investment over 90 days.

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

ON Semiconductor  vs.  Starbucks

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.

Starbucks

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Starbucks may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ON Semiconductor and Starbucks

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

The idea behind ON Semiconductor and Starbucks 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.