Correlation Between ON Semiconductor and Allegro Microsystems

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

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

Diversification Opportunities for ON Semiconductor and Allegro Microsystems

0.59

Correlation Coefficient

ON Semiconductor  Allegro Microsystems

Very weak diversification

The 3 months correlation between ON Semiconductor and Allegro is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems 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 Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Allegro Microsystems go up and down completely randomly.

Pair Corralation between ON Semiconductor and Allegro Microsystems

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the Allegro Microsystems. But the stock apears to be less risky and, when comparing its historical volatility, ON Semiconductor is 1.29 times less risky than Allegro Microsystems. The stock trades about -0.03 of its potential returns per unit of risk. The Allegro Microsystems is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,268  in Allegro Microsystems on September 15, 2024 and sell it today you would lose (104.00) from holding Allegro Microsystems or give up 4.59% of portfolio value over 90 days.

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

ON Semiconductor  vs.  Allegro Microsystems

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 very healthy basic indicators, ON Semiconductor is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Allegro Microsystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegro Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Allegro Microsystems is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ON Semiconductor and Allegro Microsystems

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

The idea behind ON Semiconductor and Allegro Microsystems 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.