Correlation Between Smart Global and Silicon Laboratories

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

By analyzing existing cross correlation between Smart Global Holdings and Silicon Laboratories, you can compare the effects of market volatilities on Smart Global and Silicon Laboratories 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 Smart Global with a short position of Silicon Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smart Global and Silicon Laboratories.

Diversification Opportunities for Smart Global and Silicon Laboratories

0.72

Correlation Coefficient

Smart Global  Silicon Laboratories

Poor diversification

The 3 months correlation between Smart and Silicon is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Smart Global Holdings and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories and Smart Global 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 Smart Global Holdings are associated (or correlated) with Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of Smart Global i.e., Smart Global and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Smart Global and Silicon Laboratories

Considering the 90-day investment horizon Smart Global Holdings is expected to generate 1.48 times more return on investment than Silicon Laboratories. However, Smart Global is 1.48 times more volatile than Silicon Laboratories. It trades about 0.02 of its potential returns per unit of risk. Silicon Laboratories is currently generating about -0.01 per unit of risk. If you would invest  2,047  in Smart Global Holdings on February 23, 2024 and sell it today you would lose (31.00) from holding Smart Global Holdings or give up 1.51% of portfolio value over 90 days.

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

Smart Global Holdings  vs.  Silicon Laboratories

Smart Global Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Global Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Smart Global is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Silicon Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silicon Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Silicon Laboratories is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smart Global and Silicon Laboratories

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

The idea behind Smart Global Holdings and Silicon Laboratories 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.