Correlation Between Wolfspeed and Silicon Laboratories

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

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

Diversification Opportunities for Wolfspeed and Silicon Laboratories

-0.7

Correlation Coefficient

Wolfspeed  Silicon Laboratories

Excellent diversification

The 3 months correlation between Wolfspeed and Silicon is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Wolfspeed and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories and Wolfspeed 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 Wolfspeed 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 Wolfspeed i.e., Wolfspeed and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Wolfspeed and Silicon Laboratories

Given the investment horizon of 90 days Wolfspeed is expected to under-perform the Silicon Laboratories. In addition to that, Wolfspeed is 2.18 times more volatile than Silicon Laboratories. It trades about -0.02 of its total potential returns per unit of risk. Silicon Laboratories is currently generating about -0.02 per unit of volatility. If you would invest  13,479  in Silicon Laboratories on December 4, 2024 and sell it today you would lose (343.00) from holding Silicon Laboratories or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Wolfspeed  vs.  Silicon Laboratories

Wolfspeed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wolfspeed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's essential 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 Laboratories

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Laboratories are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Silicon Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wolfspeed and Silicon Laboratories

The main advantage of trading using opposite Wolfspeed and Silicon Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wolfspeed 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 Wolfspeed 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..