Correlation Between ON Semiconductor and Power Integrations

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

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

Diversification Opportunities for ON Semiconductor and Power Integrations

0.29

Correlation Coefficient

ON Semiconductor  Power Integrations

Modest diversification

The 3 months correlation between ON Semiconductor and Power is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations 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 Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Power Integrations go up and down completely randomly.

Pair Corralation between ON Semiconductor and Power Integrations

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the Power Integrations. But the stock apears to be less risky and, when comparing its historical volatility, ON Semiconductor is 1.0 times less risky than Power Integrations. The stock trades about -0.1 of its potential returns per unit of risk. The Power Integrations is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,347  in Power Integrations on September 23, 2024 and sell it today you would lose (177.00) from holding Power Integrations or give up 2.79% of portfolio value over 90 days.

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

ON Semiconductor  vs.  Power Integrations

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 latest stock price disarray, may contribute to short-term losses for the investors.

Power Integrations

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Integrations are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Power Integrations is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ON Semiconductor and Power Integrations

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

The idea behind ON Semiconductor and Power Integrations 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.