Correlation Between Silicom and Nova

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

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

Diversification Opportunities for Silicom and Nova

0.77

Correlation Coefficient

Silicom  Nova

Poor diversification

The 3 months correlation between Silicom and Nova is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Silicom and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Silicom 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 Silicom are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Silicom i.e., Silicom and Nova go up and down completely randomly.

Pair Corralation between Silicom and Nova

Given the investment horizon of 90 days Silicom is expected to generate 1.22 times more return on investment than Nova. However, Silicom is 1.22 times more volatile than Nova. It trades about 0.14 of its potential returns per unit of risk. Nova is currently generating about 0.17 per unit of risk. If you would invest  1,315  in Silicom on October 26, 2024 and sell it today you would earn a total of  420.00  from holding Silicom or generate 31.94% return on investment over 90 days.

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

Silicom  vs.  Nova

Silicom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silicom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Silicom exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nova

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Nova demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Silicom and Nova

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

The idea behind Silicom and Nova 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..