Correlation Between Westinghouse Air and Silicon Motion

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

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

Diversification Opportunities for Westinghouse Air and Silicon Motion

-0.05

Correlation Coefficient

Westinghouse Air  Silicon Motion

Good diversification

The 3 months correlation between Westinghouse and Silicon is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Westinghouse Air Brake 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 Westinghouse Air 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 Westinghouse Air Brake 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 Westinghouse Air i.e., Westinghouse Air and Silicon Motion go up and down completely randomly.

Pair Corralation between Westinghouse Air and Silicon Motion

Assuming the 90 days horizon Westinghouse Air Brake is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, Westinghouse Air Brake is 2.8 times less risky than Silicon Motion. The stock trades about -0.19 of its potential returns per unit of risk. The Silicon Motion Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,250  in Silicon Motion Technology on September 24, 2024 and sell it today you would lose (150.00) from holding Silicon Motion Technology or give up 2.86% of portfolio value over 90 days.

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

Westinghouse Air Brake  vs.  Silicon Motion Technology

Westinghouse Air Brake

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Westinghouse Air and Silicon Motion

The main advantage of trading using opposite Westinghouse Air and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westinghouse Air 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 Westinghouse Air Brake 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.