Correlation Between Vulcan Materials and ON Semiconductor

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

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

Diversification Opportunities for Vulcan Materials and ON Semiconductor

0.56

Correlation Coefficient

Vulcan Materials  ON Semiconductor

Very weak diversification

The 3 months correlation between Vulcan and O2NS34 is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and ON Semiconductor go up and down completely randomly.

Pair Corralation between Vulcan Materials and ON Semiconductor

Assuming the 90 days trading horizon Vulcan Materials is expected to generate 0.74 times more return on investment than ON Semiconductor. However, Vulcan Materials is 1.36 times less risky than ON Semiconductor. It trades about 0.09 of its potential returns per unit of risk. ON Semiconductor is currently generating about 0.03 per unit of risk. If you would invest  1,802  in Vulcan Materials on October 8, 2024 and sell it today you would earn a total of  891.00  from holding Vulcan Materials or generate 49.45% return on investment over 90 days.

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

Vulcan Materials  vs.  ON Semiconductor

Vulcan Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Vulcan Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Vulcan Materials and ON Semiconductor

The main advantage of trading using opposite Vulcan Materials and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.