Correlation Between Microsoft and SILICON LABORATOR

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

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

Diversification Opportunities for Microsoft and SILICON LABORATOR

0.64

Correlation Coefficient

Microsoft  SILICON LABORATOR

Poor diversification

The 3 months correlation between Microsoft and SILICON is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SILICON LABORATOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SILICON LABORATOR and Microsoft 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 Microsoft are associated (or correlated) with SILICON LABORATOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SILICON LABORATOR has no effect on the direction of Microsoft i.e., Microsoft and SILICON LABORATOR go up and down completely randomly.

Pair Corralation between Microsoft and SILICON LABORATOR

Assuming the 90 days trading horizon Microsoft is expected to generate 1.72 times less return on investment than SILICON LABORATOR. But when comparing it to its historical volatility, Microsoft is 1.81 times less risky than SILICON LABORATOR. It trades about 0.11 of its potential returns per unit of risk. SILICON LABORATOR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  10,300  in SILICON LABORATOR on October 6, 2024 and sell it today you would earn a total of  1,700  from holding SILICON LABORATOR or generate 16.5% return on investment over 90 days.

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

Microsoft  vs.  SILICON LABORATOR

Microsoft

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SILICON LABORATOR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SILICON LABORATOR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SILICON LABORATOR unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and SILICON LABORATOR

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

The idea behind Microsoft and SILICON LABORATOR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.