Correlation Between Amazon and Silicon Laboratories

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

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

Diversification Opportunities for Amazon and Silicon Laboratories

0.5

Correlation Coefficient

Amazon  Silicon Laboratories

Very weak diversification

The 3 months correlation between Amazon and Silicon is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories and Amazon 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 Amazon Inc are associated (or correlated) with Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of Amazon i.e., Amazon and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Amazon and Silicon Laboratories

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Silicon Laboratories. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.53 times less risky than Silicon Laboratories. The stock trades about -0.12 of its potential returns per unit of risk. The Silicon Laboratories is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  12,486  in Silicon Laboratories on December 29, 2024 and sell it today you would lose (1,183) from holding Silicon Laboratories or give up 9.47% of portfolio value over 90 days.

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

Amazon Inc  vs.  Silicon Laboratories

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Silicon Laboratories

Risk-Adjusted Performance

Very Weak

Over the last 90 days Silicon Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Amazon and Silicon Laboratories

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

The idea behind Amazon Inc and Silicon Laboratories 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 Commodity Directory module to find actively traded commodities issued by global exchanges.