Correlation Between Penn National and ON Semiconductor

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

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

Diversification Opportunities for Penn National and ON Semiconductor

0.38

Correlation Coefficient

Penn National  ON Semiconductor

Weak diversification

The 3 months correlation between Penn and O2NS34 is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Penn National Gaming and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Penn National 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 Penn National Gaming are associated (or correlated) with ON Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ON Semiconductor has no effect on the direction of Penn National i.e., Penn National and ON Semiconductor go up and down completely randomly.

Pair Corralation between Penn National and ON Semiconductor

Given the investment horizon of 90 days Penn National Gaming is expected to under-perform the ON Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Penn National Gaming is 1.0 times less risky than ON Semiconductor. The stock trades about -0.05 of its potential returns per unit of risk. The ON Semiconductor is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,170  in ON Semiconductor on October 8, 2024 and sell it today you would lose (210.00) from holding ON Semiconductor or give up 4.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.5%
Values	Daily Returns

Penn National Gaming  vs.  ON Semiconductor

Penn National Gaming

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Penn National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ON Semiconductor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON Semiconductor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ON Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Penn National and ON Semiconductor

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

The idea behind Penn National Gaming and ON Semiconductor 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.