Correlation Between Taiwan Semiconductor and International CSRC

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

By analyzing existing cross correlation between Taiwan Semiconductor Manufacturing and International CSRC Investment, you can compare the effects of market volatilities on Taiwan Semiconductor and International CSRC 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 Taiwan Semiconductor with a short position of International CSRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and International CSRC.

Diversification Opportunities for Taiwan Semiconductor and International CSRC

-0.87

Correlation Coefficient

Taiwan Semiconductor  International CSRC

Pay attention - limited upside

The 3 months correlation between Taiwan and International is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and International CSRC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International CSRC and Taiwan Semiconductor 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 Taiwan Semiconductor Manufacturing are associated (or correlated) with International CSRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International CSRC has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and International CSRC go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and International CSRC

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.47 times more return on investment than International CSRC. However, Taiwan Semiconductor is 1.47 times more volatile than International CSRC Investment. It trades about 0.11 of its potential returns per unit of risk. International CSRC Investment is currently generating about -0.02 per unit of risk. If you would invest  45,850  in Taiwan Semiconductor Manufacturing on January 31, 2024 and sell it today you would earn a total of  33,150  from holding Taiwan Semiconductor Manufacturing or generate 72.3% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  International CSRC Investment

Taiwan Semiconductor

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

International CSRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International CSRC Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, International CSRC is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Semiconductor and International CSRC

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

The idea behind Taiwan Semiconductor Manufacturing and International CSRC Investment 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.