Correlation Between Spirent Communications and Silicon Motion

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

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

Diversification Opportunities for Spirent Communications and Silicon Motion

0.42

Correlation Coefficient

Spirent Communications  Silicon Motion

Very weak diversification

The 3 months correlation between Spirent and Silicon is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc 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 Spirent Communications 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 Spirent Communications plc 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 Spirent Communications i.e., Spirent Communications and Silicon Motion go up and down completely randomly.

Pair Corralation between Spirent Communications and Silicon Motion

Assuming the 90 days horizon Spirent Communications plc is expected to generate 0.41 times more return on investment than Silicon Motion. However, Spirent Communications plc is 2.42 times less risky than Silicon Motion. It trades about 0.12 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about 0.01 per unit of risk. If you would invest  206.00  in Spirent Communications plc on September 27, 2024 and sell it today you would earn a total of  6.00  from holding Spirent Communications plc or generate 2.91% return on investment over 90 days.

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

Spirent Communications plc  vs.  Silicon Motion Technology

Spirent Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Spirent Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Silicon Motion Technology

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Silicon Motion is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Spirent Communications and Silicon Motion

The main advantage of trading using opposite Spirent Communications and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications 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 Spirent Communications plc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.