Correlation Between Citigroup and Taiwan Semiconductor

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Can any of the company-specific risk be diversified away by investing in both Citigroup 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 Citigroup and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citigroup and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Citigroup 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 Citigroup with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Taiwan Semiconductor.

Diversification Opportunities for Citigroup and Taiwan Semiconductor

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Citigroup and Taiwan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Citigroup and Taiwan Semiconductor

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.26 times less return on investment than Taiwan Semiconductor. But when comparing it to its historical volatility, Citigroup is 1.22 times less risky than Taiwan Semiconductor. It trades about 0.04 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,376  in Taiwan Semiconductor Manufacturing on December 30, 2023 and sell it today you would earn a total of  4,229  from holding Taiwan Semiconductor Manufacturing or generate 45.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Citigroup  vs.  Taiwan Semiconductor Manufactu

 Performance 
       Timeline  
Citigroup 

Risk-Adjusted Performance

18 of 100

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

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Citigroup and Taiwan Semiconductor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Citigroup and Taiwan Semiconductor

The main advantage of trading using opposite Citigroup and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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 Citigroup 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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