Correlation Between Silicon Motion and Alpha

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

Diversification Opportunities for Silicon Motion and Alpha

0.53

Correlation Coefficient

Silicon Motion  Alpha

Very weak diversification

The 3 months correlation between Silicon and Alpha is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and Alpha and Omega in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha and Omega 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 Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha and Omega has no effect on the direction of Silicon Motion i.e., Silicon Motion and Alpha go up and down completely randomly.

Pair Corralation between Silicon Motion and Alpha

Given the investment horizon of 90 days Silicon Motion Technology is expected to under-perform the Alpha. But the stock apears to be less risky and, when comparing its historical volatility, Silicon Motion Technology is 2.65 times less risky than Alpha. The stock trades about -0.04 of its potential returns per unit of risk. The Alpha and Omega is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,591  in Alpha and Omega on September 4, 2024 and sell it today you would earn a total of  548.00  from holding Alpha and Omega or generate 15.26% 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.  Alpha and Omega

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 very healthy primary indicators, Silicon Motion is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Alpha and Omega

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha and Omega are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Alpha disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Silicon Motion and Alpha

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

The idea behind Silicon Motion Technology and Alpha and Omega 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.