Correlation Between SemiLEDS and Sitime

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

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

Diversification Opportunities for SemiLEDS and Sitime

0.37

Correlation Coefficient

SemiLEDS  Sitime

Weak diversification

The 3 months correlation between SemiLEDS and Sitime is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding SemiLEDS and Sitime in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitime and SemiLEDS 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 SemiLEDS are associated (or correlated) with Sitime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitime has no effect on the direction of SemiLEDS i.e., SemiLEDS and Sitime go up and down completely randomly.

Pair Corralation between SemiLEDS and Sitime

Given the investment horizon of 90 days SemiLEDS is expected to generate 1.44 times less return on investment than Sitime. In addition to that, SemiLEDS is 1.6 times more volatile than Sitime. It trades about 0.1 of its total potential returns per unit of risk. Sitime is currently generating about 0.23 per unit of volatility. If you would invest  17,234  in Sitime on September 16, 2024 and sell it today you would earn a total of  8,027  from holding Sitime or generate 46.58% return on investment over 90 days.

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

SemiLEDS  vs.  Sitime

SemiLEDS

Risk-Adjusted Performance

4 of 100

Insignificant

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

Sitime

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sitime are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Sitime displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SemiLEDS and Sitime

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

The idea behind SemiLEDS and Sitime 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.