Correlation Between Smart Global and Sitime

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

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

Diversification Opportunities for Smart Global and Sitime

-0.47

Correlation Coefficient

Smart Global  Sitime

Very good diversification

The 3 months correlation between Smart and Sitime is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Smart Global Holdings and Sitime in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitime and Smart Global 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 Smart Global Holdings 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 Smart Global i.e., Smart Global and Sitime go up and down completely randomly.

Pair Corralation between Smart Global and Sitime

Considering the 90-day investment horizon Smart Global is expected to generate 1.63 times less return on investment than Sitime. In addition to that, Smart Global is 1.02 times more volatile than Sitime. It trades about 0.04 of its total potential returns per unit of risk. Sitime is currently generating about 0.07 per unit of volatility. If you would invest  10,162  in Sitime on September 20, 2024 and sell it today you would earn a total of  14,684  from holding Sitime or generate 144.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.11%
Values	Daily Returns

Smart Global Holdings  vs.  Sitime

Smart Global Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Smart Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unfluctuating technical and fundamental indicators, Smart Global demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sitime

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sitime are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sitime displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smart Global and Sitime

The main advantage of trading using opposite Smart Global and Sitime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smart Global 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 Smart Global Holdings 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.