Correlation Between FormFactor and ON Semiconductor
Can any of the company-specific risk be diversified away by investing in both FormFactor 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 FormFactor and ON Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FormFactor and ON Semiconductor, you can compare the effects of market volatilities on FormFactor 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 FormFactor with a short position of ON Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of FormFactor and ON Semiconductor.
Diversification Opportunities for FormFactor and ON Semiconductor
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between FormFactor and ON Semiconductor is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and FormFactor 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 FormFactor 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 FormFactor i.e., FormFactor and ON Semiconductor go up and down completely randomly.
Pair Corralation between FormFactor and ON Semiconductor
Given the investment horizon of 90 days FormFactor is expected to generate 1.15 times less return on investment than ON Semiconductor. But when comparing it to its historical volatility, FormFactor is 1.05 times less risky than ON Semiconductor. It trades about 0.03 of its potential returns per unit of risk. ON Semiconductor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,121 in ON Semiconductor on January 17, 2024 and sell it today you would earn a total of 1,443 from holding ON Semiconductor or generate 28.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FormFactor vs. ON Semiconductor
Performance |
| Timeline |
| FormFactor |
| ON Semiconductor |
FormFactor and ON Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FormFactor and ON Semiconductor
The main advantage of trading using opposite FormFactor and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FormFactor 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 FormFactor 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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