Correlation Between Deswell Industries and ON Semiconductor

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

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

Diversification Opportunities for Deswell Industries and ON Semiconductor

-0.19

Correlation Coefficient

Deswell Industries  ON Semiconductor

Good diversification

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

Pair Corralation between Deswell Industries and ON Semiconductor

Given the investment horizon of 90 days Deswell Industries is expected to generate 0.78 times more return on investment than ON Semiconductor. However, Deswell Industries is 1.28 times less risky than ON Semiconductor. It trades about 0.02 of its potential returns per unit of risk. ON Semiconductor is currently generating about -0.06 per unit of risk. If you would invest  218.00  in Deswell Industries on January 20, 2024 and sell it today you would earn a total of  7.00  from holding Deswell Industries or generate 3.21% return on investment over 90 days.

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

Deswell Industries  vs.  ON Semiconductor

Deswell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Deswell Industries and ON Semiconductor

The main advantage of trading using opposite Deswell Industries and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deswell Industries 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 Deswell Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.