Correlation Between Canadian National and Silicon Motion

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

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

Diversification Opportunities for Canadian National and Silicon Motion

0.44

Correlation Coefficient

Canadian National  Silicon Motion

Very weak diversification

The 3 months correlation between Canadian and Silicon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway 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 Canadian National 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 Canadian National Railway 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 Canadian National i.e., Canadian National and Silicon Motion go up and down completely randomly.

Pair Corralation between Canadian National and Silicon Motion

Assuming the 90 days horizon Canadian National is expected to generate 325.21 times less return on investment than Silicon Motion. But when comparing it to its historical volatility, Canadian National Railway is 1.62 times less risky than Silicon Motion. It trades about 0.0 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  3,585  in Silicon Motion Technology on April 23, 2025 and sell it today you would earn a total of  2,765  from holding Silicon Motion Technology or generate 77.13% return on investment over 90 days.

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

Canadian National Railway  vs.  Silicon Motion Technology

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Silicon Motion Technology

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Motion Technology are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Silicon Motion unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and Silicon Motion

The main advantage of trading using opposite Canadian National and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National 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 Canadian National Railway 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.