Correlation Between STMicroelectronics and ON Semiconductor

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

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

Diversification Opportunities for STMicroelectronics and ON Semiconductor

0.44

Correlation Coefficient

STMicroelectronics  ON Semiconductor

Very weak diversification

The 3 months correlation between STMicroelectronics and ON Semiconductor is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and STMicroelectronics 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 STMicroelectronics NV 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 STMicroelectronics i.e., STMicroelectronics and ON Semiconductor go up and down completely randomly.

Pair Corralation between STMicroelectronics and ON Semiconductor

Assuming the 90 days horizon STMicroelectronics NV is expected to generate 2.26 times more return on investment than ON Semiconductor. However, STMicroelectronics is 2.26 times more volatile than ON Semiconductor. It trades about 0.03 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.16 per unit of risk. If you would invest  2,585  in STMicroelectronics NV on October 10, 2024 and sell it today you would earn a total of  16.00  from holding STMicroelectronics NV or generate 0.62% return on investment over 90 days.

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

STMicroelectronics NV  vs.  ON Semiconductor

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, STMicroelectronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the 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 latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with STMicroelectronics and ON Semiconductor

The main advantage of trading using opposite STMicroelectronics and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.