Correlation Between Taiwan Semiconductor and Nokia
Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Nokia 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 Nokia 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 Nokia, you can compare the effects of market volatilities on Taiwan Semiconductor and Nokia 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 Nokia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Nokia.
Diversification Opportunities for Taiwan Semiconductor and Nokia
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Nokia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Nokia go up and down completely randomly.
Pair Corralation between Taiwan Semiconductor and Nokia
Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.96 times more return on investment than Nokia. However, Taiwan Semiconductor Manufacturing is 1.04 times less risky than Nokia. It trades about -0.11 of its potential returns per unit of risk. Nokia is currently generating about -0.35 per unit of risk. If you would invest 394,728 in Taiwan Semiconductor Manufacturing on September 2, 2024 and sell it today you would lose (18,516) from holding Taiwan Semiconductor Manufacturing or give up 4.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Taiwan Semiconductor Manufactu vs. Nokia
Performance |
| Timeline |
| Taiwan Semiconductor |
| Nokia |
Taiwan Semiconductor and Nokia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Semiconductor and Nokia
The main advantage of trading using opposite Taiwan Semiconductor and Nokia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, Nokia 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 Nokia will offset losses from the drop in Nokia's long position.| Taiwan Semiconductor vs. KB Home | Taiwan Semiconductor vs. First Republic Bank | Taiwan Semiconductor vs. Capital One Financial | Taiwan Semiconductor vs. Samsung Electronics Co |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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