Correlation Between Sea and ON Semiconductor

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

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

Diversification Opportunities for Sea and ON Semiconductor

-0.19

Correlation Coefficient

Sea  ON Semiconductor

Good diversification

The 3 months correlation between Sea and ON Semiconductor is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Sea and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Sea 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 Sea 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 Sea i.e., Sea and ON Semiconductor go up and down completely randomly.

Pair Corralation between Sea and ON Semiconductor

Allowing for the 90-day total investment horizon Sea is expected to generate 0.94 times more return on investment than ON Semiconductor. However, Sea is 1.07 times less risky than ON Semiconductor. It trades about 0.3 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.02 per unit of risk. If you would invest  7,691  in Sea on September 7, 2024 and sell it today you would earn a total of  4,021  from holding Sea or generate 52.28% return on investment over 90 days.

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

Sea  vs.  ON Semiconductor

Sea

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Sea and ON Semiconductor

The main advantage of trading using opposite Sea and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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.

Check out your portfolio center.

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.