Correlation Between Frequency Electronics and Silicom

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

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

Diversification Opportunities for Frequency Electronics and Silicom

0.62

Correlation Coefficient

Frequency Electronics  Silicom

Poor diversification

The 3 months correlation between Frequency and Silicom is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Frequency Electronics and Silicom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicom and Frequency Electronics 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 Frequency Electronics are associated (or correlated) with Silicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicom has no effect on the direction of Frequency Electronics i.e., Frequency Electronics and Silicom go up and down completely randomly.

Pair Corralation between Frequency Electronics and Silicom

Given the investment horizon of 90 days Frequency Electronics is expected to generate 1.76 times less return on investment than Silicom. In addition to that, Frequency Electronics is 1.43 times more volatile than Silicom. It trades about 0.05 of its total potential returns per unit of risk. Silicom is currently generating about 0.13 per unit of volatility. If you would invest  1,303  in Silicom on November 29, 2024 and sell it today you would earn a total of  347.00  from holding Silicom or generate 26.63% return on investment over 90 days.

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

Frequency Electronics  vs.  Silicom

Frequency Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Silicom

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silicom are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Silicom exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frequency Electronics and Silicom

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

The idea behind Frequency Electronics and Silicom 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.