Correlation Between X FAB and Silicon Motion

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

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

Diversification Opportunities for X FAB and Silicon Motion

0.7

Correlation Coefficient

X FAB  Silicon Motion

Poor diversification

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

Pair Corralation between X FAB and Silicon Motion

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 1.12 times more return on investment than Silicon Motion. However, X FAB is 1.12 times more volatile than Silicon Motion Technology. It trades about -0.04 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.07 per unit of risk. If you would invest  611.00  in X FAB Silicon Foundries on September 30, 2024 and sell it today you would lose (110.00) from holding X FAB Silicon Foundries or give up 18.0% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  Silicon Motion Technology

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.

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.

Pair Trading with X FAB and Silicon Motion

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

The idea behind X FAB Silicon Foundries and Silicon Motion Technology 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.