Correlation Between EMCORE and ON Semiconductor

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Can any of the company-specific risk be diversified away by investing in both EMCORE 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 EMCORE and ON Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EMCORE and ON Semiconductor, you can compare the effects of market volatilities on EMCORE 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 EMCORE with a short position of ON Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMCORE and ON Semiconductor.

Diversification Opportunities for EMCORE and ON Semiconductor

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between EMCORE and ON Semiconductor is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding EMCORE and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and EMCORE 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 EMCORE 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 EMCORE i.e., EMCORE and ON Semiconductor go up and down completely randomly.

Pair Corralation between EMCORE and ON Semiconductor

Given the investment horizon of 90 days EMCORE is expected to under-perform the ON Semiconductor. In addition to that, EMCORE is 1.14 times more volatile than ON Semiconductor. It trades about -0.23 of its total potential returns per unit of risk. ON Semiconductor is currently generating about -0.05 per unit of volatility. If you would invest  7,647  in ON Semiconductor on December 30, 2023 and sell it today you would lose (292.00) from holding ON Semiconductor or give up 3.82% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

EMCORE  vs.  ON Semiconductor

 Performance 
       Timeline  
EMCORE 

Risk-Adjusted Performance

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Low
 
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Very Weak
Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in April 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
ON Semiconductor 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

EMCORE and ON Semiconductor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EMCORE and ON Semiconductor

The main advantage of trading using opposite EMCORE and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMCORE 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 EMCORE 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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