Correlation Between Roche Holding and Taiwan Semiconductor

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

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

Diversification Opportunities for Roche Holding and Taiwan Semiconductor

-0.8

Correlation Coefficient

Roche Holding  Taiwan Semiconductor

Pay attention - limited upside

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

Pair Corralation between Roche Holding and Taiwan Semiconductor

Assuming the 90 days horizon Roche Holding AG is expected to under-perform the Taiwan Semiconductor. In addition to that, Roche Holding is 1.63 times more volatile than Taiwan Semiconductor Manufacturing. It trades about -0.02 of its total potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.11 per unit of volatility. If you would invest  9,590  in Taiwan Semiconductor Manufacturing on January 17, 2024 and sell it today you would earn a total of  4,424  from holding Taiwan Semiconductor Manufacturing or generate 46.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.46%
Values	Daily Returns

Roche Holding AG  vs.  Taiwan Semiconductor Manufactu

Roche Holding AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Taiwan Semiconductor

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Roche Holding and Taiwan Semiconductor

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

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.