Correlation Between Canadian Solar and Silicon Laboratories

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

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

Diversification Opportunities for Canadian Solar and Silicon Laboratories

0.42

Correlation Coefficient

Canadian Solar  Silicon Laboratories

Very weak diversification

The 3 months correlation between Canadian and Silicon is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Solar and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories and Canadian Solar 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 Canadian Solar 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 Canadian Solar i.e., Canadian Solar and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Canadian Solar and Silicon Laboratories

Given the investment horizon of 90 days Canadian Solar is expected to generate 1.63 times more return on investment than Silicon Laboratories. However, Canadian Solar is 1.63 times more volatile than Silicon Laboratories. It trades about -0.04 of its potential returns per unit of risk. Silicon Laboratories is currently generating about -0.07 per unit of risk. If you would invest  1,402  in Canadian Solar on August 30, 2024 and sell it today you would lose (126.00) from holding Canadian Solar or give up 8.99% of portfolio value over 90 days.

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

Canadian Solar  vs.  Silicon Laboratories

Canadian Solar

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Solar are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward indicators, Canadian Solar may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Silicon Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silicon Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Silicon Laboratories is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Canadian Solar and Silicon Laboratories

The main advantage of trading using opposite Canadian Solar and Silicon Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Solar 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 Canadian Solar 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.