Correlation Between Bank of America and Taiwan Semiconductor
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Taiwan Semiconductor.
Diversification Opportunities for Bank of America and Taiwan Semiconductor
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and Taiwan is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Taiwan Semiconductor go up and down completely randomly.
Pair Corralation between Bank of America and Taiwan Semiconductor
Assuming the 90 days trading horizon Bank of America is expected to generate 1.2 times less return on investment than Taiwan Semiconductor. But when comparing it to its historical volatility, Bank of America is 1.44 times less risky than Taiwan Semiconductor. It trades about 0.12 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 181,577 in Taiwan Semiconductor Manufacturing on September 4, 2024 and sell it today you would earn a total of 212,523 from holding Taiwan Semiconductor Manufacturing or generate 117.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Taiwan Semiconductor Manufactu
Performance |
| Timeline |
| Bank of America |
| Taiwan Semiconductor |
Bank of America and Taiwan Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Taiwan Semiconductor
The main advantage of trading using opposite Bank of America and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Ameriprise Financial | Bank of America vs. United States Steel | Bank of America vs. First Majestic Silver | Bank of America vs. Verizon Communications |
| Taiwan Semiconductor vs. Samsung Electronics Co | Taiwan Semiconductor vs. Southwest Airlines | Taiwan Semiconductor vs. Verizon Communications | Taiwan Semiconductor vs. Grupo Sports World |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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