Correlation Between TFS FINANCIAL and Silicon Motion

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Can any of the company-specific risk be diversified away by investing in both TFS 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 TFS 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 TFS FINANCIAL and Silicon Motion Technology, you can compare the effects of market volatilities on TFS 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 TFS FINANCIAL with a short position of Silicon Motion. Check out your portfolio center. Please also check ongoing floating volatility patterns of TFS FINANCIAL and Silicon Motion.

Diversification Opportunities for TFS FINANCIAL and Silicon Motion

-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between TFS and Silicon is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding TFS FINANCIAL 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 TFS 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 TFS FINANCIAL 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 TFS FINANCIAL i.e., TFS FINANCIAL and Silicon Motion go up and down completely randomly.

Pair Corralation between TFS FINANCIAL and Silicon Motion

Assuming the 90 days trading horizon TFS FINANCIAL is expected to under-perform the Silicon Motion. But the stock apears to be less risky and, when comparing its historical volatility, TFS FINANCIAL is 1.77 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 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,760  in Silicon Motion Technology on September 17, 2024 and sell it today you would earn a total of  740.00  from holding Silicon Motion Technology or generate 15.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

TFS FINANCIAL  vs.  Silicon Motion Technology

 Performance 
       Timeline  
TFS FINANCIAL 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in TFS FINANCIAL are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TFS FINANCIAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Silicon Motion Technology 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Motion Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Silicon Motion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TFS FINANCIAL and Silicon Motion Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with TFS FINANCIAL and Silicon Motion

The main advantage of trading using opposite TFS FINANCIAL and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TFS 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 TFS FINANCIAL 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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