Correlation Between Hon Hai and Taiwan Semiconductor
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Taiwan Semiconductor 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 Hon Hai and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hon Hai Precision and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Hon Hai and Taiwan Semiconductor 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 Hon Hai with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Taiwan Semiconductor.
Diversification Opportunities for Hon Hai and Taiwan Semiconductor
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Hon and Taiwan is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Hon Hai 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 Hon Hai Precision are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Hon Hai i.e., Hon Hai and Taiwan Semiconductor go up and down completely randomly.
Pair Corralation between Hon Hai and Taiwan Semiconductor
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Taiwan Semiconductor. In addition to that, Hon Hai is 1.2 times more volatile than Taiwan Semiconductor Manufacturing. It trades about -0.05 of its total potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.06 per unit of volatility. If you would invest 105,000 in Taiwan Semiconductor Manufacturing on August 27, 2024 and sell it today you would lose (2,000) from holding Taiwan Semiconductor Manufacturing or give up 1.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Taiwan Semiconductor Manufactu
Performance |
| Timeline |
| Hon Hai Precision |
| Taiwan Semiconductor |
Hon Hai and Taiwan Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Taiwan Semiconductor
The main advantage of trading using opposite Hon Hai and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Taiwan Semiconductor 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 Taiwan Semiconductor will offset losses from the drop in Taiwan Semiconductor's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Taiwan Semiconductor vs. United Microelectronics | Taiwan Semiconductor vs. Hon Hai Precision | Taiwan Semiconductor vs. MediaTek | Taiwan Semiconductor vs. Taiwan Semiconductor Manufacturing |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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