Correlation Between Arm Holdings and Silicon Laboratories

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

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

Diversification Opportunities for Arm Holdings and Silicon Laboratories

0.88

Correlation Coefficient

Arm Holdings  Silicon Laboratories

Very poor diversification

The 3 months correlation between Arm and Silicon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories and Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Arm Holdings and Silicon Laboratories

Considering the 90-day investment horizon Arm Holdings plc is expected to under-perform the Silicon Laboratories. In addition to that, Arm Holdings is 1.2 times more volatile than Silicon Laboratories. It trades about -0.07 of its total potential returns per unit of risk. Silicon Laboratories is currently generating about -0.07 per unit of volatility. If you would invest  14,770  in Silicon Laboratories on February 11, 2025 and sell it today you would lose (3,065) from holding Silicon Laboratories or give up 20.75% of portfolio value over 90 days.

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

Arm Holdings plc  vs.  Silicon Laboratories

Arm Holdings plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arm Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Silicon Laboratories

Risk-Adjusted Performance

Very Weak

Over the last 90 days Silicon Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Arm Holdings and Silicon Laboratories

The main advantage of trading using opposite Arm Holdings and Silicon Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings 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 Arm Holdings plc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.