Correlation Between Carsales and Silicon Motion

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

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

Diversification Opportunities for Carsales and Silicon Motion

-0.33

Correlation Coefficient

Carsales  Silicon Motion

Very good diversification

The 3 months correlation between Carsales and Silicon is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom 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 Carsales 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 CarsalesCom 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 Carsales i.e., Carsales and Silicon Motion go up and down completely randomly.

Pair Corralation between Carsales and Silicon Motion

Assuming the 90 days horizon CarsalesCom is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 1.53 times less risky than Silicon Motion. The stock trades about -0.13 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 December 4, 2024 and sell it today you would earn a total of  150.00  from holding Silicon Motion Technology or generate 2.86% return on investment over 90 days.

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

CarsalesCom  vs.  Silicon Motion Technology

CarsalesCom

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Silicon Motion Technology

Risk-Adjusted Performance

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

Pair Trading with Carsales and Silicon Motion

The main advantage of trading using opposite Carsales and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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 CarsalesCom 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.