Correlation Between Taiwan Semiconductor and ArcelorMittal

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Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and ArcelorMittal 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 ArcelorMittal 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 ArcelorMittal SA, you can compare the effects of market volatilities on Taiwan Semiconductor and ArcelorMittal 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 ArcelorMittal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and ArcelorMittal.

Diversification Opportunities for Taiwan Semiconductor and ArcelorMittal

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Taiwan and ArcelorMittal is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and ArcelorMittal go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and ArcelorMittal

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.41 times more return on investment than ArcelorMittal. However, Taiwan Semiconductor is 1.41 times more volatile than ArcelorMittal SA. It trades about 0.15 of its potential returns per unit of risk. ArcelorMittal SA is currently generating about 0.05 per unit of risk. If you would invest  5,900  in Taiwan Semiconductor Manufacturing on August 26, 2024 and sell it today you would earn a total of  7,935  from holding Taiwan Semiconductor Manufacturing or generate 134.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.6%
ValuesDaily Returns

Taiwan Semiconductor Manufactu  vs.  ArcelorMittal SA

 Performance 
       Timeline  
Taiwan Semiconductor 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Taiwan Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.
ArcelorMittal SA 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, ArcelorMittal sustained solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor and ArcelorMittal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Taiwan Semiconductor and ArcelorMittal

The main advantage of trading using opposite Taiwan Semiconductor and ArcelorMittal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, ArcelorMittal 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 ArcelorMittal will offset losses from the drop in ArcelorMittal's long position.
The idea behind Taiwan Semiconductor Manufacturing and ArcelorMittal SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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