Correlation Between ON SEMICONDUCTOR and Aqua Metals

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

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

Diversification Opportunities for ON SEMICONDUCTOR and Aqua Metals

0.22

Correlation Coefficient

ON SEMICONDUCTOR  Aqua Metals

Modest diversification

The 3 months correlation between XS4 and Aqua is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding ON SEMICONDUCTOR and Aqua Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua Metals and ON SEMICONDUCTOR 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 ON SEMICONDUCTOR are associated (or correlated) with Aqua Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua Metals has no effect on the direction of ON SEMICONDUCTOR i.e., ON SEMICONDUCTOR and Aqua Metals go up and down completely randomly.

Pair Corralation between ON SEMICONDUCTOR and Aqua Metals

Assuming the 90 days trading horizon ON SEMICONDUCTOR is expected to generate 0.44 times more return on investment than Aqua Metals. However, ON SEMICONDUCTOR is 2.26 times less risky than Aqua Metals. It trades about -0.01 of its potential returns per unit of risk. Aqua Metals is currently generating about -0.04 per unit of risk. If you would invest  7,380  in ON SEMICONDUCTOR on October 24, 2024 and sell it today you would lose (2,026) from holding ON SEMICONDUCTOR or give up 27.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.6%
Values	Daily Returns

ON SEMICONDUCTOR  vs.  Aqua Metals

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 fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Aqua Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqua Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aqua Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ON SEMICONDUCTOR and Aqua Metals

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

The idea behind ON SEMICONDUCTOR and Aqua Metals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.