Correlation Between Sumitomo Electric and Taiwan Semiconductor
Can any of the company-specific risk be diversified away by investing in both Sumitomo Electric 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 Sumitomo Electric and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo Electric Industries and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Sumitomo Electric 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 Sumitomo Electric with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Electric and Taiwan Semiconductor.
Diversification Opportunities for Sumitomo Electric and Taiwan Semiconductor
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sumitomo and Taiwan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Electric Industries and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Sumitomo Electric 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 Sumitomo Electric Industries 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 Sumitomo Electric i.e., Sumitomo Electric and Taiwan Semiconductor go up and down completely randomly.
Pair Corralation between Sumitomo Electric and Taiwan Semiconductor
Assuming the 90 days horizon Sumitomo Electric is expected to generate 2.37 times less return on investment than Taiwan Semiconductor. But when comparing it to its historical volatility, Sumitomo Electric Industries is 4.73 times less risky than Taiwan Semiconductor. It trades about 0.13 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 15,390 in Taiwan Semiconductor Manufacturing on September 1, 2024 and sell it today you would earn a total of 3,076 from holding Taiwan Semiconductor Manufacturing or generate 19.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Sumitomo Electric Industries vs. Taiwan Semiconductor Manufactu
Performance |
| Timeline |
| Sumitomo Electric |
| Taiwan Semiconductor |
Sumitomo Electric and Taiwan Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sumitomo Electric and Taiwan Semiconductor
The main advantage of trading using opposite Sumitomo Electric and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Electric 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.| Sumitomo Electric vs. Micron Technology | Sumitomo Electric vs. Elmos Semiconductor SE | Sumitomo Electric vs. ASE Industrial Holding | Sumitomo Electric vs. Perseus Mining Limited |
| Taiwan Semiconductor vs. NVIDIA | Taiwan Semiconductor vs. Intel | Taiwan Semiconductor vs. Marvell Technology Group | Taiwan Semiconductor vs. Micron Technology |
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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