Correlation Between Silicon Motion and SemiLEDS

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

Diversification Opportunities for Silicon Motion and SemiLEDS

-0.02

Correlation Coefficient

Silicon Motion  SemiLEDS

Good diversification

The 3 months correlation between Silicon and SemiLEDS is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Silicon Motion Technology and SemiLEDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SemiLEDS 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 SemiLEDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SemiLEDS has no effect on the direction of Silicon Motion i.e., Silicon Motion and SemiLEDS go up and down completely randomly.

Pair Corralation between Silicon Motion and SemiLEDS

Given the investment horizon of 90 days Silicon Motion Technology is expected to under-perform the SemiLEDS. But the stock apears to be less risky and, when comparing its historical volatility, Silicon Motion Technology is 2.7 times less risky than SemiLEDS. The stock trades about -0.05 of its potential returns per unit of risk. The SemiLEDS is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  132.00  in SemiLEDS on September 2, 2024 and sell it today you would lose (3.00) from holding SemiLEDS or give up 2.27% of portfolio value over 90 days.

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

Silicon Motion Technology  vs.  SemiLEDS

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.

SemiLEDS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SemiLEDS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, SemiLEDS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Silicon Motion and SemiLEDS

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

The idea behind Silicon Motion Technology and SemiLEDS 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.