Correlation Between Taiwan Semiconductor and Wafer Works
Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Wafer Works 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 Wafer Works 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 Wafer Works, you can compare the effects of market volatilities on Taiwan Semiconductor and Wafer Works 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 Wafer Works. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Wafer Works.
Diversification Opportunities for Taiwan Semiconductor and Wafer Works
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Taiwan and Wafer is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Wafer Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wafer Works 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 Wafer Works. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wafer Works has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Wafer Works go up and down completely randomly.
Pair Corralation between Taiwan Semiconductor and Wafer Works
Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.26 times more return on investment than Wafer Works. However, Taiwan Semiconductor is 1.26 times more volatile than Wafer Works. It trades about 0.07 of its potential returns per unit of risk. Wafer Works is currently generating about -0.1 per unit of risk. If you would invest 83,900 in Taiwan Semiconductor Manufacturing on September 1, 2024 and sell it today you would earn a total of 15,700 from holding Taiwan Semiconductor Manufacturing or generate 18.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.22% |
| Values | Daily Returns |
Taiwan Semiconductor Manufactu vs. Wafer Works
Performance |
| Timeline |
| Taiwan Semiconductor |
| Wafer Works |
Taiwan Semiconductor and Wafer Works Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Semiconductor and Wafer Works
The main advantage of trading using opposite Taiwan Semiconductor and Wafer Works positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, Wafer Works 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 Wafer Works will offset losses from the drop in Wafer Works' long position.| 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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