Correlation Between Silicom and Nokia Corp

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

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

Diversification Opportunities for Silicom and Nokia Corp

0.07

Correlation Coefficient

Silicom  Nokia Corp

Significant diversification

The 3 months correlation between Silicom and Nokia is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Silicom and Nokia Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia Corp ADR and Silicom 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 Silicom are associated (or correlated) with Nokia Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia Corp ADR has no effect on the direction of Silicom i.e., Silicom and Nokia Corp go up and down completely randomly.

Pair Corralation between Silicom and Nokia Corp

Given the investment horizon of 90 days Silicom is expected to generate 1.37 times more return on investment than Nokia Corp. However, Silicom is 1.37 times more volatile than Nokia Corp ADR. It trades about 0.01 of its potential returns per unit of risk. Nokia Corp ADR is currently generating about -0.02 per unit of risk. If you would invest  1,320  in Silicom on September 2, 2024 and sell it today you would lose (17.00) from holding Silicom or give up 1.29% of portfolio value over 90 days.

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

Silicom  vs.  Nokia Corp ADR

Silicom

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nokia Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nokia Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Nokia Corp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Silicom and Nokia Corp

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

The idea behind Silicom and Nokia Corp ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.