Correlation Between ON SEMICONDUCTOR and Magnachip Semiconductor

Can any of the company-specific risk be diversified away by investing in both ON SEMICONDUCTOR and Magnachip 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 Magnachip 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 Magnachip Semiconductor, you can compare the effects of market volatilities on ON SEMICONDUCTOR and Magnachip 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 Magnachip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of ON SEMICONDUCTOR and Magnachip Semiconductor.

Diversification Opportunities for ON SEMICONDUCTOR and Magnachip Semiconductor

0.06

Correlation Coefficient

ON SEMICONDUCTOR  Magnachip Semiconductor

Significant diversification

The 3 months correlation between XS4 and Magnachip is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding ON SEMICONDUCTOR and Magnachip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnachip Semiconductor 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 Magnachip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnachip Semiconductor has no effect on the direction of ON SEMICONDUCTOR i.e., ON SEMICONDUCTOR and Magnachip Semiconductor go up and down completely randomly.

Pair Corralation between ON SEMICONDUCTOR and Magnachip Semiconductor

Assuming the 90 days trading horizon ON SEMICONDUCTOR is expected to generate 0.78 times more return on investment than Magnachip Semiconductor. However, ON SEMICONDUCTOR is 1.28 times less risky than Magnachip Semiconductor. It trades about -0.02 of its potential returns per unit of risk. Magnachip Semiconductor is currently generating about -0.04 per unit of risk. If you would invest  7,021  in ON SEMICONDUCTOR on August 31, 2024 and sell it today you would lose (334.00) from holding ON SEMICONDUCTOR or give up 4.76% of portfolio value over 90 days.

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

ON SEMICONDUCTOR  vs.  Magnachip Semiconductor

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 comparatively stable basic indicators, ON SEMICONDUCTOR is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Magnachip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnachip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ON SEMICONDUCTOR and Magnachip Semiconductor

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

The idea behind ON SEMICONDUCTOR and Magnachip 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.