Correlation Between Taiwan Semiconductor and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Cathay Financial 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 Cathay Financial 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 Cathay Financial Holding, you can compare the effects of market volatilities on Taiwan Semiconductor and Cathay Financial 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 Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Cathay Financial.
Diversification Opportunities for Taiwan Semiconductor and Cathay Financial
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Taiwan and Cathay is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding 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 Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Cathay Financial go up and down completely randomly.
Pair Corralation between Taiwan Semiconductor and Cathay Financial
Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.37 times more return on investment than Cathay Financial. However, Taiwan Semiconductor is 1.37 times more volatile than Cathay Financial Holding. It trades about 0.1 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.08 per unit of risk. If you would invest 46,283 in Taiwan Semiconductor Manufacturing on August 30, 2024 and sell it today you would earn a total of 53,717 from holding Taiwan Semiconductor Manufacturing or generate 116.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Taiwan Semiconductor Manufactu vs. Cathay Financial Holding
Performance |
| Timeline |
| Taiwan Semiconductor |
| Cathay Financial Holding |
Taiwan Semiconductor and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Semiconductor and Cathay Financial
The main advantage of trading using opposite Taiwan Semiconductor and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, Cathay Financial 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 Cathay Financial will offset losses from the drop in Cathay Financial's long position.| Taiwan Semiconductor vs. United Microelectronics | Taiwan Semiconductor vs. Hon Hai Precision | Taiwan Semiconductor vs. MediaTek | Taiwan Semiconductor vs. Taiwan Semiconductor Manufacturing |
| Cathay Financial vs. Taiwan Secom Co | Cathay Financial vs. TTET Union Corp | Cathay Financial vs. China Steel Chemical | Cathay Financial vs. Taiwan Shin Kong |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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