Correlation Between Constellation Software and Silicon Motion

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

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

Diversification Opportunities for Constellation Software and Silicon Motion

0.17

Correlation Coefficient

Constellation Software  Silicon Motion

Average diversification

The 3 months correlation between Constellation and Silicon is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Silicon Motion Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Motion Technology and Constellation Software 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 Constellation Software are associated (or correlated) with Silicon Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Motion Technology has no effect on the direction of Constellation Software i.e., Constellation Software and Silicon Motion go up and down completely randomly.

Pair Corralation between Constellation Software and Silicon Motion

Assuming the 90 days trading horizon Constellation Software is expected to generate 1.4 times less return on investment than Silicon Motion. But when comparing it to its historical volatility, Constellation Software is 2.09 times less risky than Silicon Motion. It trades about 0.05 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,197  in Silicon Motion Technology on October 1, 2024 and sell it today you would earn a total of  203.00  from holding Silicon Motion Technology or generate 3.91% return on investment over 90 days.

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

Constellation Software  vs.  Silicon Motion Technology

Constellation Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Silicon Motion Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Motion Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Silicon Motion is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Constellation Software and Silicon Motion

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

The idea behind Constellation Software and Silicon Motion Technology 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.