Correlation Between ON Semiconductor and NVIDIA

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

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

Diversification Opportunities for ON Semiconductor and NVIDIA

0.51

Correlation Coefficient

ON Semiconductor  NVIDIA

Very weak diversification

The 3 months correlation between ON Semiconductor and NVIDIA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and NVIDIA go up and down completely randomly.

Pair Corralation between ON Semiconductor and NVIDIA

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, ON Semiconductor is 1.05 times less risky than NVIDIA. The stock trades about -0.05 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,516  in NVIDIA on December 2, 2024 and sell it today you would earn a total of  7,976  from holding NVIDIA or generate 176.62% 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.  NVIDIA

ON Semiconductor

Risk-Adjusted Performance

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

NVIDIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVIDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, NVIDIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ON Semiconductor and NVIDIA

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

The idea behind ON Semiconductor and NVIDIA 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.