Correlation Between Digi International and Taiwan Semiconductor

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

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

Diversification Opportunities for Digi International and Taiwan Semiconductor

0.8

Correlation Coefficient

Digi International  Taiwan Semiconductor

Very poor diversification

The 3 months correlation between Digi and Taiwan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Digi International 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 Digi International 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 Digi International i.e., Digi International and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Digi International and Taiwan Semiconductor

Given the investment horizon of 90 days Digi International is expected to generate 1.67 times less return on investment than Taiwan Semiconductor. In addition to that, Digi International is 1.21 times more volatile than Taiwan Semiconductor Manufacturing. It trades about 0.03 of its total potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.07 per unit of volatility. If you would invest  7,352  in Taiwan Semiconductor Manufacturing on January 25, 2024 and sell it today you would earn a total of  5,945  from holding Taiwan Semiconductor Manufacturing or generate 80.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Digi International  vs.  Taiwan Semiconductor Manufactu

Digi International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

OK

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 weak basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digi International and Taiwan Semiconductor

The main advantage of trading using opposite Digi International and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digi International 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 Digi International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.