Correlation Between Globalfoundries and ON Semiconductor

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

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

Diversification Opportunities for Globalfoundries and ON Semiconductor

0.3

Correlation Coefficient

Globalfoundries  ON Semiconductor

Weak diversification

The 3 months correlation between Globalfoundries and ON Semiconductor is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Globalfoundries and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Globalfoundries 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 Globalfoundries 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 Globalfoundries i.e., Globalfoundries and ON Semiconductor go up and down completely randomly.

Pair Corralation between Globalfoundries and ON Semiconductor

Considering the 90-day investment horizon Globalfoundries is expected to generate 1.51 times more return on investment than ON Semiconductor. However, Globalfoundries is 1.51 times more volatile than ON Semiconductor. It trades about 0.02 of its potential returns per unit of risk. ON Semiconductor is currently generating about 0.01 per unit of risk. If you would invest  4,268  in Globalfoundries on September 2, 2024 and sell it today you would earn a total of  57.00  from holding Globalfoundries or generate 1.34% return on investment over 90 days.

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

Globalfoundries  vs.  ON Semiconductor

Globalfoundries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Globalfoundries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Globalfoundries is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

ON Semiconductor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ON Semiconductor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ON Semiconductor is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Globalfoundries and ON Semiconductor

The main advantage of trading using opposite Globalfoundries and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globalfoundries 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 Globalfoundries 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.