Correlation Between Silicon Motion and X FAB

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

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

Diversification Opportunities for Silicon Motion and X FAB

0.7

Correlation Coefficient

Silicon Motion  X FAB

Poor diversification

The 3 months correlation between Silicon and XFB is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Silicon Motion 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 Silicon Motion Technology are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Silicon Motion i.e., Silicon Motion and X FAB go up and down completely randomly.

Pair Corralation between Silicon Motion and X FAB

Assuming the 90 days trading horizon Silicon Motion Technology is expected to generate 0.98 times more return on investment than X FAB. However, Silicon Motion Technology is 1.02 times less risky than X FAB. It trades about 0.02 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about 0.01 per unit of risk. If you would invest  5,346  in Silicon Motion Technology on September 30, 2024 and sell it today you would earn a total of  54.00  from holding Silicon Motion Technology or generate 1.01% return on investment over 90 days.

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

Silicon Motion Technology  vs.  X FAB Silicon Foundries

Silicon Motion Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Motion Technology are ranked lower than 1 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Silicon Motion and X FAB

The main advantage of trading using opposite Silicon Motion and X FAB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Silicon Motion position performs unexpectedly, X FAB 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 X FAB will offset losses from the drop in X FAB's long position.

The idea behind Silicon Motion Technology and X FAB Silicon Foundries 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.