Correlation Between ON Semiconductor and Texas Instruments

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

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

Diversification Opportunities for ON Semiconductor and Texas Instruments

0.38

Correlation Coefficient

ON Semiconductor  Texas Instruments

Weak diversification

The 3 months correlation between ON Semiconductor and Texas is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Texas Instruments Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Instruments 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 Texas Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Instruments has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Texas Instruments go up and down completely randomly.

Pair Corralation between ON Semiconductor and Texas Instruments

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the Texas Instruments. In addition to that, ON Semiconductor is 1.44 times more volatile than Texas Instruments Incorporated. It trades about -0.21 of its total potential returns per unit of risk. Texas Instruments Incorporated is currently generating about -0.03 per unit of volatility. If you would invest  18,658  in Texas Instruments Incorporated on December 30, 2024 and sell it today you would lose (1,025) from holding Texas Instruments Incorporated or give up 5.49% 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.  Texas Instruments Incorporated

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.

Texas Instruments

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ON Semiconductor and Texas Instruments

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

The idea behind ON Semiconductor and Texas Instruments Incorporated 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.