Correlation Between ON Semiconductor and Smart Global

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

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

Diversification Opportunities for ON Semiconductor and Smart Global

0.33

Correlation Coefficient

ON Semiconductor  Smart Global

Weak diversification

The 3 months correlation between ON Semiconductor and Smart is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Smart Global Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smart Global Holdings 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 Smart Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smart Global Holdings has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Smart Global go up and down completely randomly.

Pair Corralation between ON Semiconductor and Smart Global

Allowing for the 90-day total investment horizon ON Semiconductor is expected to generate 7.9 times less return on investment than Smart Global. But when comparing it to its historical volatility, ON Semiconductor is 1.03 times less risky than Smart Global. It trades about 0.01 of its potential returns per unit of risk. Smart Global Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,895  in Smart Global Holdings on September 2, 2024 and sell it today you would earn a total of  146.00  from holding Smart Global Holdings or generate 7.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	50.0%
Values	Daily Returns

ON Semiconductor  vs.  Smart Global Holdings

ON Semiconductor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON Semiconductor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ON Semiconductor is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Smart Global Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Smart Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unfluctuating technical and fundamental indicators, Smart Global demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ON Semiconductor and Smart Global

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

The idea behind ON Semiconductor and Smart Global Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.