Correlation Between Taiwan Semiconductor and Powerchip Semiconductor

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

Diversification Opportunities for Taiwan Semiconductor and Powerchip Semiconductor

-0.55

Correlation Coefficient

Taiwan Semiconductor  Powerchip Semiconductor

Excellent diversification

The 3 months correlation between Taiwan and Powerchip is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Powerchip Semiconductor Manufa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powerchip Semiconductor 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 Powerchip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powerchip Semiconductor has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Powerchip Semiconductor go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Powerchip Semiconductor

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.78 times more return on investment than Powerchip Semiconductor. However, Taiwan Semiconductor Manufacturing is 1.28 times less risky than Powerchip Semiconductor. It trades about -0.04 of its potential returns per unit of risk. Powerchip Semiconductor Manufacturing is currently generating about -0.06 per unit of risk. If you would invest  82,000  in Taiwan Semiconductor Manufacturing on February 11, 2024 and sell it today you would lose (1,800) from holding Taiwan Semiconductor Manufacturing or give up 2.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Powerchip Semiconductor Manufa

Taiwan Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Powerchip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powerchip Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Taiwan Semiconductor and Powerchip Semiconductor

The main advantage of trading using opposite Taiwan Semiconductor and Powerchip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, Powerchip 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 Powerchip Semiconductor will offset losses from the drop in Powerchip Semiconductor's long position.

The idea behind Taiwan Semiconductor Manufacturing and Powerchip Semiconductor Manufacturing 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.