Correlation Between Renesas Electronics and ON Semiconductor

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

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

Diversification Opportunities for Renesas Electronics and ON Semiconductor

0.25

Correlation Coefficient

Renesas Electronics  ON Semiconductor

Modest diversification

The 3 months correlation between Renesas and ON Semiconductor is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics i.e., Renesas Electronics and ON Semiconductor go up and down completely randomly.

Pair Corralation between Renesas Electronics and ON Semiconductor

Assuming the 90 days horizon Renesas Electronics is expected to generate 1.58 times more return on investment than ON Semiconductor. However, Renesas Electronics is 1.58 times more volatile than ON Semiconductor. It trades about 0.01 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.02 per unit of risk. If you would invest  1,543  in Renesas Electronics on October 5, 2024 and sell it today you would lose (238.00) from holding Renesas Electronics or give up 15.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.63%
Values	Daily Returns

Renesas Electronics  vs.  ON Semiconductor

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 conflicting 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.

Pair Trading with Renesas Electronics and ON Semiconductor

The main advantage of trading using opposite Renesas Electronics and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renesas Electronics 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 Renesas Electronics 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.