Correlation Between ASE Industrial and Silicon Motion

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

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

Diversification Opportunities for ASE Industrial and Silicon Motion

0.47

Correlation Coefficient

ASE Industrial  Silicon Motion

Very weak diversification

The 3 months correlation between ASE and Silicon is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and Silicon Motion Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Motion Technology and ASE Industrial 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 ASE Industrial Holding are associated (or correlated) with Silicon Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Motion Technology has no effect on the direction of ASE Industrial i.e., ASE Industrial and Silicon Motion go up and down completely randomly.

Pair Corralation between ASE Industrial and Silicon Motion

Considering the 90-day investment horizon ASE Industrial Holding is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, ASE Industrial Holding is 1.01 times less risky than Silicon Motion. The stock trades about -0.05 of its potential returns per unit of risk. The Silicon Motion Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,435  in Silicon Motion Technology on December 27, 2024 and sell it today you would lose (273.00) from holding Silicon Motion Technology or give up 5.02% of portfolio value over 90 days.

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

ASE Industrial Holding  vs.  Silicon Motion Technology

ASE Industrial Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days ASE Industrial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

Silicon Motion Technology

Risk-Adjusted Performance

Weak

Over the last 90 days Silicon Motion Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Silicon Motion is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ASE Industrial and Silicon Motion

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

The idea behind ASE Industrial Holding and Silicon Motion Technology 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..