Correlation Between Silicon Motion and Silicon Laboratories

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

Diversification Opportunities for Silicon Motion and Silicon Laboratories

0.55

Correlation Coefficient

Silicon Motion  Silicon Laboratories

Very weak diversification

The 3 months correlation between Silicon and Silicon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories 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 Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of Silicon Motion i.e., Silicon Motion and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Silicon Motion and Silicon Laboratories

Given the investment horizon of 90 days Silicon Motion Technology is expected to under-perform the Silicon Laboratories. In addition to that, Silicon Motion is 1.02 times more volatile than Silicon Laboratories. It trades about -0.01 of its total potential returns per unit of risk. Silicon Laboratories is currently generating about 0.19 per unit of volatility. If you would invest  11,206  in Silicon Laboratories on September 24, 2024 and sell it today you would earn a total of  1,294  from holding Silicon Laboratories or generate 11.55% 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.  Silicon Laboratories

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 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.

Silicon Laboratories

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Laboratories are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Silicon Laboratories may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Silicon Motion and Silicon Laboratories

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

The idea behind Silicon Motion Technology and Silicon Laboratories 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 CEOs Directory module to screen CEOs from public companies around the world.