Correlation Between Onto Innovation and Diodes Incorporated

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

By analyzing existing cross correlation between Onto Innovation and Diodes Incorporated, you can compare the effects of market volatilities on Onto Innovation and Diodes Incorporated 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 Onto Innovation with a short position of Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Onto Innovation and Diodes Incorporated.

Diversification Opportunities for Onto Innovation and Diodes Incorporated

0.42

Correlation Coefficient

Onto Innovation  Diodes Incorporated

Very weak diversification

The 3 months correlation between Onto and Diodes is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Onto Innovation and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated and Onto Innovation 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 Onto Innovation are associated (or correlated) with Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Onto Innovation i.e., Onto Innovation and Diodes Incorporated go up and down completely randomly.

Pair Corralation between Onto Innovation and Diodes Incorporated

Given the investment horizon of 90 days Onto Innovation is expected to generate 1.19 times more return on investment than Diodes Incorporated. However, Onto Innovation is 1.19 times more volatile than Diodes Incorporated. It trades about 0.3 of its potential returns per unit of risk. Diodes Incorporated is currently generating about -0.1 per unit of risk. If you would invest  16,645  in Onto Innovation on October 13, 2024 and sell it today you would earn a total of  2,316  from holding Onto Innovation or generate 13.91% return on investment over 90 days.

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

Onto Innovation  vs.  Diodes Incorporated

Onto Innovation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Onto Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Diodes Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Onto Innovation and Diodes Incorporated

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

The idea behind Onto Innovation and Diodes 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.