Correlation Between ON Semiconductor and EMCORE

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

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

Diversification Opportunities for ON Semiconductor and EMCORE

0.07

Correlation Coefficient

ON Semiconductor  EMCORE

Significant diversification

The 3 months correlation between ON Semiconductor and EMCORE is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding ON Semiconductor and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE 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 EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of ON Semiconductor i.e., ON Semiconductor and EMCORE go up and down completely randomly.

Pair Corralation between ON Semiconductor and EMCORE

Allowing for the 90-day total investment horizon ON Semiconductor is expected to generate 0.61 times more return on investment than EMCORE. However, ON Semiconductor is 1.64 times less risky than EMCORE. It trades about 0.03 of its potential returns per unit of risk. EMCORE is currently generating about -0.07 per unit of risk. 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 Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

ON Semiconductor  vs.  EMCORE

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 latest unfluctuating 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

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ON Semiconductor and EMCORE

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

The idea behind ON Semiconductor and EMCORE 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.