Correlation Between Siemens AG and X-FAB Silicon

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

By analyzing existing cross correlation between Siemens AG ADR and X FAB Silicon Foundries, you can compare the effects of market volatilities on Siemens AG and X-FAB Silicon 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 Siemens AG with a short position of X-FAB Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Siemens AG and X-FAB Silicon.

Diversification Opportunities for Siemens AG and X-FAB Silicon

0.83

Correlation Coefficient

Siemens AG  X-FAB Silicon

Very poor diversification

The 3 months correlation between Siemens and X-FAB is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Siemens AG ADR and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Siemens AG 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 Siemens AG ADR are associated (or correlated) with X-FAB Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Siemens AG i.e., Siemens AG and X-FAB Silicon go up and down completely randomly.

Pair Corralation between Siemens AG and X-FAB Silicon

Assuming the 90 days horizon Siemens AG ADR is expected to generate 0.77 times more return on investment than X-FAB Silicon. However, Siemens AG ADR is 1.3 times less risky than X-FAB Silicon. It trades about 0.09 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.04 per unit of risk. If you would invest  41.00  in Siemens AG ADR on October 11, 2024 and sell it today you would earn a total of  1.00  from holding Siemens AG ADR or generate 2.44% return on investment over 90 days.

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

Siemens AG ADR  vs.  X FAB Silicon Foundries

Siemens AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, X-FAB Silicon is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Siemens AG and X-FAB Silicon

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

The idea behind Siemens AG ADR and X FAB Silicon Foundries 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.