Correlation Between Bitcoin and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both Bitcoin 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 Bitcoin and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bitcoin and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Bitcoin 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 Bitcoin with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and Taiwan Semiconductor.

Diversification Opportunities for Bitcoin and Taiwan Semiconductor

0.92

Correlation Coefficient

Bitcoin  Taiwan Semiconductor

Almost no diversification

The 3 months correlation between Bitcoin and Taiwan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Bitcoin 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 Bitcoin 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 Bitcoin i.e., Bitcoin and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Bitcoin and Taiwan Semiconductor

Assuming the 90 days trading horizon Bitcoin is expected to generate 1.23 times more return on investment than Taiwan Semiconductor. However, Bitcoin is 1.23 times more volatile than Taiwan Semiconductor Manufacturing. It trades about -0.07 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.1 per unit of risk. If you would invest  6,999,022  in Bitcoin on January 25, 2024 and sell it today you would lose (309,932) from holding Bitcoin or give up 4.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Bitcoin  vs.  Taiwan Semiconductor Manufactu

Bitcoin

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bitcoin and Taiwan Semiconductor

The main advantage of trading using opposite Bitcoin and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin 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.

The idea behind Bitcoin and Taiwan 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.