Correlation Between ON SEMICONDUCTOR and Nordic Semiconductor

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

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

Diversification Opportunities for ON SEMICONDUCTOR and Nordic Semiconductor

-0.67

Correlation Coefficient

ON SEMICONDUCTOR  Nordic Semiconductor

Excellent diversification

The 3 months correlation between XS4 and Nordic is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding ON SEMICONDUCTOR and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of ON SEMICONDUCTOR i.e., ON SEMICONDUCTOR and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between ON SEMICONDUCTOR and Nordic Semiconductor

Assuming the 90 days trading horizon ON SEMICONDUCTOR is expected to under-perform the Nordic Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, ON SEMICONDUCTOR is 1.32 times less risky than Nordic Semiconductor. The stock trades about -0.22 of its potential returns per unit of risk. The Nordic Semiconductor ASA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  853.00  in Nordic Semiconductor ASA on December 29, 2024 and sell it today you would earn a total of  281.00  from holding Nordic Semiconductor ASA or generate 32.94% return on investment over 90 days.

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

ON SEMICONDUCTOR  vs.  Nordic Semiconductor ASA

ON SEMICONDUCTOR

Risk-Adjusted Performance

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 April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Nordic Semiconductor ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nordic Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ON SEMICONDUCTOR and Nordic Semiconductor

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

The idea behind ON SEMICONDUCTOR and Nordic Semiconductor ASA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.