Correlation Between Extreme Networks and Silicon Motion

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

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

Diversification Opportunities for Extreme Networks and Silicon Motion

0.11

Correlation Coefficient

Extreme Networks  Silicon Motion

Average diversification

The 3 months correlation between Extreme and Silicon is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Extreme Networks 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 Extreme Networks 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 Extreme Networks 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 Extreme Networks i.e., Extreme Networks and Silicon Motion go up and down completely randomly.

Pair Corralation between Extreme Networks and Silicon Motion

Given the investment horizon of 90 days Extreme Networks is expected to generate about the same return on investment as Silicon Motion Technology. But, Extreme Networks is 1.25 times less risky than Silicon Motion. It trades about -0.07 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.05 per unit of risk. If you would invest  5,323  in Silicon Motion Technology on October 20, 2024 and sell it today you would lose (127.00) from holding Silicon Motion Technology or give up 2.39% of portfolio value over 90 days.

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

Extreme Networks  vs.  Silicon Motion Technology

Extreme Networks

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Extreme Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Silicon Motion Technology

Risk-Adjusted Performance

0 of 100

Very 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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Extreme Networks and Silicon Motion

The main advantage of trading using opposite Extreme Networks and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extreme Networks 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 Extreme Networks 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.