Correlation Between ON Semiconductor and Microchip Technology

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

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

Diversification Opportunities for ON Semiconductor and Microchip Technology

-0.05

Correlation Coefficient

ON Semiconductor  Microchip Technology

Good diversification

The 3 months correlation between ON Semiconductor and Microchip is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and Microchip Technology go up and down completely randomly.

Pair Corralation between ON Semiconductor and Microchip Technology

Allowing for the 90-day total investment horizon ON Semiconductor is expected to under-perform the Microchip Technology. In addition to that, ON Semiconductor is 1.12 times more volatile than Microchip Technology. It trades about -0.37 of its total potential returns per unit of risk. Microchip Technology is currently generating about -0.17 per unit of volatility. If you would invest  8,834  in Microchip Technology on January 20, 2024 and sell it today you would lose (666.00) from holding Microchip Technology or give up 7.54% of portfolio value over 90 days.

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

ON Semiconductor  vs.  Microchip Technology

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.

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Microchip Technology is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ON Semiconductor and Microchip Technology

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

The idea behind ON Semiconductor and Microchip Technology 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.