Correlation Between Alfa Financial and Silicon Motion

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

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

Diversification Opportunities for Alfa Financial and Silicon Motion

-0.71

Correlation Coefficient

Alfa Financial  Silicon Motion

Pay attention - limited upside

The 3 months correlation between Alfa and Silicon is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial 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 Alfa Financial 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 Alfa Financial 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 Alfa Financial i.e., Alfa Financial and Silicon Motion go up and down completely randomly.

Pair Corralation between Alfa Financial and Silicon Motion

Assuming the 90 days trading horizon Alfa Financial Software is expected to generate 0.91 times more return on investment than Silicon Motion. However, Alfa Financial Software is 1.1 times less risky than Silicon Motion. It trades about 0.15 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.08 per unit of risk. If you would invest  214.00  in Alfa Financial Software on August 31, 2024 and sell it today you would earn a total of  46.00  from holding Alfa Financial Software or generate 21.5% return on investment over 90 days.

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

Alfa Financial Software  vs.  Silicon Motion Technology

Alfa Financial Software

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Alfa Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Silicon Motion Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silicon Motion Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Alfa Financial and Silicon Motion

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

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.