Correlation Between Silicon Motion and Equity LifeStyle

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

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

Diversification Opportunities for Silicon Motion and Equity LifeStyle

-0.41

Correlation Coefficient

Silicon Motion  Equity LifeStyle

Very good diversification

The 3 months correlation between Silicon and Equity is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and Equity LifeStyle Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity LifeStyle Pro and Silicon Motion 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 Silicon Motion Technology are associated (or correlated) with Equity LifeStyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity LifeStyle Pro has no effect on the direction of Silicon Motion i.e., Silicon Motion and Equity LifeStyle go up and down completely randomly.

Pair Corralation between Silicon Motion and Equity LifeStyle

Assuming the 90 days trading horizon Silicon Motion Technology is expected to under-perform the Equity LifeStyle. In addition to that, Silicon Motion is 2.37 times more volatile than Equity LifeStyle Properties. It trades about -0.17 of its total potential returns per unit of risk. Equity LifeStyle Properties is currently generating about -0.13 per unit of volatility. If you would invest  6,451  in Equity LifeStyle Properties on October 16, 2024 and sell it today you would lose (201.00) from holding Equity LifeStyle Properties or give up 3.12% of portfolio value over 90 days.

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

Silicon Motion Technology  vs.  Equity LifeStyle Properties

Silicon Motion Technology

Risk-Adjusted Performance

0 of 100

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Equity LifeStyle Pro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Silicon Motion and Equity LifeStyle

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

The idea behind Silicon Motion Technology and Equity LifeStyle Properties 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.