Correlation Between NVIDIA and ON Semiconductor

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

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

Diversification Opportunities for NVIDIA and ON Semiconductor

-0.37

Correlation Coefficient

NVIDIA  ON Semiconductor

Very good diversification

The 3 months correlation between NVIDIA and ON Semiconductor is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and ON Semiconductor go up and down completely randomly.

Pair Corralation between NVIDIA and ON Semiconductor

Given the investment horizon of 90 days NVIDIA is expected to under-perform the ON Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, NVIDIA is 1.09 times less risky than ON Semiconductor. The stock trades about -0.14 of its potential returns per unit of risk. The ON Semiconductor is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,648  in ON Semiconductor on September 18, 2024 and sell it today you would earn a total of  126.00  from holding ON Semiconductor or generate 1.9% return on investment over 90 days.

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

NVIDIA  vs.  ON Semiconductor

NVIDIA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

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 very healthy basic indicators, ON Semiconductor is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NVIDIA and ON Semiconductor

The main advantage of trading using opposite NVIDIA and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..