Correlation Between H2O Retailing and Silicon Motion

Can any of the company-specific risk be diversified away by investing in both H2O Retailing 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 H2O Retailing and Silicon Motion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between H2O Retailing and Silicon Motion Technology, you can compare the effects of market volatilities on H2O Retailing 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 H2O Retailing with a short position of Silicon Motion. Check out your portfolio center. Please also check ongoing floating volatility patterns of H2O Retailing and Silicon Motion.

Diversification Opportunities for H2O Retailing and Silicon Motion

0.53

Correlation Coefficient

H2O Retailing  Silicon Motion

Very weak diversification

The 3 months correlation between H2O and Silicon is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding H2O Retailing 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 H2O Retailing 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 H2O Retailing 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 H2O Retailing i.e., H2O Retailing and Silicon Motion go up and down completely randomly.

Pair Corralation between H2O Retailing and Silicon Motion

Assuming the 90 days horizon H2O Retailing is expected to generate 0.65 times more return on investment than Silicon Motion. However, H2O Retailing is 1.53 times less risky than Silicon Motion. It trades about 0.02 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.02 per unit of risk. If you would invest  1,340  in H2O Retailing on December 21, 2024 and sell it today you would earn a total of  20.00  from holding H2O Retailing or generate 1.49% return on investment over 90 days.

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

H2O Retailing  vs.  Silicon Motion Technology

H2O Retailing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in H2O Retailing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, H2O Retailing is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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

Pair Trading with H2O Retailing and Silicon Motion

The main advantage of trading using opposite H2O Retailing and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H2O Retailing 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 H2O Retailing 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.