Correlation Between Silicon Motion and Sanyo Chemical

Can any of the company-specific risk be diversified away by investing in both Silicon Motion and Sanyo Chemical 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 Sanyo Chemical 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 Sanyo Chemical Industries, you can compare the effects of market volatilities on Silicon Motion and Sanyo Chemical 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 Sanyo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silicon Motion and Sanyo Chemical.

Diversification Opportunities for Silicon Motion and Sanyo Chemical

0.44

Correlation Coefficient

Silicon Motion  Sanyo Chemical

Very weak diversification

The 3 months correlation between Silicon and Sanyo is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and Sanyo Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanyo Chemical Industries 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 Sanyo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanyo Chemical Industries has no effect on the direction of Silicon Motion i.e., Silicon Motion and Sanyo Chemical go up and down completely randomly.

Pair Corralation between Silicon Motion and Sanyo Chemical

Assuming the 90 days trading horizon Silicon Motion Technology is expected to under-perform the Sanyo Chemical. In addition to that, Silicon Motion is 1.82 times more volatile than Sanyo Chemical Industries. It trades about -0.05 of its total potential returns per unit of risk. Sanyo Chemical Industries is currently generating about 0.01 per unit of volatility. If you would invest  2,388  in Sanyo Chemical Industries on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Sanyo Chemical Industries or generate 0.5% return on investment over 90 days.

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

Silicon Motion Technology  vs.  Sanyo Chemical Industries

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Sanyo Chemical Industries

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Silicon Motion and Sanyo Chemical

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

The idea behind Silicon Motion Technology and Sanyo Chemical Industries 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.