Correlation Between MagnaChip Semiconductor and Silicon Motion

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

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

Diversification Opportunities for MagnaChip Semiconductor and Silicon Motion

0.55

Correlation Coefficient

MagnaChip Semiconductor  Silicon Motion

Very weak diversification

The 3 months correlation between MagnaChip and Silicon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and Silicon Motion go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and Silicon Motion

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to generate about the same return on investment as Silicon Motion Technology. However, MagnaChip Semiconductor is 1.19 times more volatile than Silicon Motion Technology. It trades about -0.02 of its potential returns per unit of risk. Silicon Motion Technology is currently producing about -0.03 per unit of risk. 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	Weak
Accuracy	100.0%
Values	Daily Returns

MagnaChip Semiconductor  vs.  Silicon Motion Technology

MagnaChip Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, MagnaChip Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 MagnaChip Semiconductor and Silicon Motion

The main advantage of trading using opposite MagnaChip Semiconductor and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.