Correlation Between General Dynamics and Silicon Motion

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

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

Diversification Opportunities for General Dynamics and Silicon Motion

-0.45

Correlation Coefficient

General Dynamics  Silicon Motion

Very good diversification

The 3 months correlation between General and Silicon is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics 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 General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and Silicon Motion go up and down completely randomly.

Pair Corralation between General Dynamics and Silicon Motion

Assuming the 90 days trading horizon General Dynamics is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 2.72 times less risky than Silicon Motion. The stock trades about -0.08 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  5,350  in Silicon Motion Technology on October 11, 2024 and sell it today you would lose (100.00) from holding Silicon Motion Technology or give up 1.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

General Dynamics  vs.  Silicon Motion Technology

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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

Pair Trading with General Dynamics and Silicon Motion

The main advantage of trading using opposite General Dynamics and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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 General Dynamics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.