Correlation Between Smart Global and ON Semiconductor

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

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

Diversification Opportunities for Smart Global and ON Semiconductor

0.53

Correlation Coefficient

Smart Global  ON Semiconductor

Very weak diversification

The 3 months correlation between Smart and ON Semiconductor is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Smart Global Holdings and ON Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ON Semiconductor and Smart Global 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 Smart Global Holdings 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 Smart Global i.e., Smart Global and ON Semiconductor go up and down completely randomly.

Pair Corralation between Smart Global and ON Semiconductor

Considering the 90-day investment horizon Smart Global Holdings is expected to generate 0.72 times more return on investment than ON Semiconductor. However, Smart Global Holdings is 1.4 times less risky than ON Semiconductor. It trades about 0.28 of its potential returns per unit of risk. ON Semiconductor is currently generating about 0.06 per unit of risk. If you would invest  1,858  in Smart Global Holdings on March 7, 2024 and sell it today you would earn a total of  189.00  from holding Smart Global Holdings or generate 10.17% return on investment over 90 days.

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

Smart Global Holdings  vs.  ON Semiconductor

Smart Global Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smart Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Smart Global and ON Semiconductor

The main advantage of trading using opposite Smart Global and ON Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smart Global 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 Smart Global Holdings 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.