Correlation Between Globalfoundries and Silicon Motion

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

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

Diversification Opportunities for Globalfoundries and Silicon Motion

0.34

Correlation Coefficient

Globalfoundries  Silicon Motion

Weak diversification

The 3 months correlation between Globalfoundries and Silicon is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Globalfoundries 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 Globalfoundries 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 Globalfoundries 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 Globalfoundries i.e., Globalfoundries and Silicon Motion go up and down completely randomly.

Pair Corralation between Globalfoundries and Silicon Motion

Considering the 90-day investment horizon Globalfoundries is expected to under-perform the Silicon Motion. In addition to that, Globalfoundries is 1.05 times more volatile than Silicon Motion Technology. It trades about -0.08 of its total potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.03 per unit of volatility. If you would invest  5,410  in Silicon Motion Technology on December 29, 2024 and sell it today you would lose (337.00) from holding Silicon Motion Technology or give up 6.23% of portfolio value over 90 days.

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

Globalfoundries  vs.  Silicon Motion Technology

Globalfoundries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Globalfoundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Silicon Motion Technology

Risk-Adjusted Performance

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 very healthy primary indicators, Silicon Motion is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Globalfoundries and Silicon Motion

The main advantage of trading using opposite Globalfoundries and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globalfoundries 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 Globalfoundries 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.