Correlation Between Alpha and Sitime

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

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

Diversification Opportunities for Alpha and Sitime

0.75

Correlation Coefficient

Alpha  Sitime

Poor diversification

The 3 months correlation between Alpha and Sitime is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Alpha and Omega and Sitime in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitime and Alpha 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 Alpha and Omega are associated (or correlated) with Sitime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitime has no effect on the direction of Alpha i.e., Alpha and Sitime go up and down completely randomly.

Pair Corralation between Alpha and Sitime

Given the investment horizon of 90 days Alpha and Omega is expected to under-perform the Sitime. But the stock apears to be less risky and, when comparing its historical volatility, Alpha and Omega is 1.38 times less risky than Sitime. The stock trades about -0.1 of its potential returns per unit of risk. The Sitime is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  21,558  in Sitime on December 28, 2024 and sell it today you would lose (4,893) from holding Sitime or give up 22.7% of portfolio value over 90 days.

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

Alpha and Omega  vs.  Sitime

Alpha and Omega

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alpha and Omega has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Sitime

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sitime 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.

Pair Trading with Alpha and Sitime

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

The idea behind Alpha and Omega and Sitime 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.