Correlation Between Silicom and Extreme Networks

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

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

Diversification Opportunities for Silicom and Extreme Networks

-0.36

Correlation Coefficient

Silicom  Extreme Networks

Very good diversification

The 3 months correlation between Silicom and Extreme is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Silicom and Extreme Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extreme Networks and Silicom 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 Silicom are associated (or correlated) with Extreme Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extreme Networks has no effect on the direction of Silicom i.e., Silicom and Extreme Networks go up and down completely randomly.

Pair Corralation between Silicom and Extreme Networks

Given the investment horizon of 90 days Silicom is expected to under-perform the Extreme Networks. But the stock apears to be less risky and, when comparing its historical volatility, Silicom is 1.71 times less risky than Extreme Networks. The stock trades about -0.14 of its potential returns per unit of risk. The Extreme Networks is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,096  in Extreme Networks on March 5, 2024 and sell it today you would earn a total of  19.00  from holding Extreme Networks or generate 1.73% return on investment over 90 days.

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

Silicom  vs.  Extreme Networks

Silicom

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Silicom are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Silicom is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Extreme Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extreme Networks has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Silicom and Extreme Networks

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

The idea behind Silicom and Extreme Networks 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.