Correlation Between Japan Asia and Silicon Motion

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

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

Diversification Opportunities for Japan Asia and Silicon Motion

-0.19

Correlation Coefficient

Japan Asia  Silicon Motion

Good diversification

The 3 months correlation between Japan and Silicon is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Japan Asia Investment 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 Japan Asia 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 Japan Asia Investment 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 Japan Asia i.e., Japan Asia and Silicon Motion go up and down completely randomly.

Pair Corralation between Japan Asia and Silicon Motion

Assuming the 90 days horizon Japan Asia Investment is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, Japan Asia Investment is 2.73 times less risky than Silicon Motion. The stock trades about -0.23 of its potential returns per unit of risk. The Silicon Motion Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,250  in Silicon Motion Technology on September 24, 2024 and sell it today you would lose (150.00) from holding Silicon Motion Technology or give up 2.86% of portfolio value over 90 days.

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

Japan Asia Investment  vs.  Silicon Motion Technology

Japan Asia Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Asia Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Asia is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Silicon Motion Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Motion Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Japan Asia and Silicon Motion

The main advantage of trading using opposite Japan Asia and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Asia 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 Japan Asia Investment 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.