Correlation Between Silicon Motion and Advanced Micro

Can any of the company-specific risk be diversified away by investing in both Silicon Motion and Advanced Micro 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 Advanced Micro 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 Advanced Micro Devices, you can compare the effects of market volatilities on Silicon Motion and Advanced Micro 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 Advanced Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silicon Motion and Advanced Micro.

Diversification Opportunities for Silicon Motion and Advanced Micro

0.58

Correlation Coefficient

Silicon Motion  Advanced Micro

Very weak diversification

The 3 months correlation between Silicon and Advanced is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices 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 Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of Silicon Motion i.e., Silicon Motion and Advanced Micro go up and down completely randomly.

Pair Corralation between Silicon Motion and Advanced Micro

Given the investment horizon of 90 days Silicon Motion Technology is expected to under-perform the Advanced Micro. But the stock apears to be less risky and, when comparing its historical volatility, Silicon Motion Technology is 1.09 times less risky than Advanced Micro. The stock trades about -0.05 of its potential returns per unit of risk. The Advanced Micro Devices is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  13,694  in Advanced Micro Devices on September 3, 2024 and sell it today you would earn a total of  24.00  from holding Advanced Micro Devices or generate 0.18% return on investment over 90 days.

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

Silicon Motion Technology  vs.  Advanced Micro Devices

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 weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Advanced Micro Devices

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Micro Devices are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Advanced Micro is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Silicon Motion and Advanced Micro

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

The idea behind Silicon Motion Technology and Advanced Micro Devices 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.