Correlation Between ON Semiconductor and Ultra Clean

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

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

Diversification Opportunities for ON Semiconductor and Ultra Clean

0.24

Correlation Coefficient

ON Semiconductor  Ultra Clean

Modest diversification

The 3 months correlation between ON Semiconductor and Ultra is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Ultra Clean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Clean Holdings 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 Ultra Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Clean Holdings has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Ultra Clean go up and down completely randomly.

Pair Corralation between ON Semiconductor and Ultra Clean

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the Ultra Clean. But the stock apears to be less risky and, when comparing its historical volatility, ON Semiconductor is 1.42 times less risky than Ultra Clean. The stock trades about -0.02 of its potential returns per unit of risk. The Ultra Clean Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,376  in Ultra Clean Holdings on September 14, 2024 and sell it today you would earn a total of  352.00  from holding Ultra Clean Holdings or generate 10.43% return on investment over 90 days.

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

ON Semiconductor  vs.  Ultra Clean Holdings

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 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.

Ultra Clean Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ultra Clean unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ON Semiconductor and Ultra Clean

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

The idea behind ON Semiconductor and Ultra Clean Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.