Correlation Between Taiwan Semiconductor and ASE Industrial

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

Diversification Opportunities for Taiwan Semiconductor and ASE Industrial

0.84

Correlation Coefficient

Taiwan Semiconductor  ASE Industrial

Very poor diversification

The 3 months correlation between Taiwan and ASE is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and ASE Industrial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASE Industrial Holding 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 ASE Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASE Industrial Holding has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and ASE Industrial go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and ASE Industrial

Considering the 90-day investment horizon Taiwan Semiconductor is expected to generate 1.55 times less return on investment than ASE Industrial. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 1.04 times less risky than ASE Industrial. It trades about 0.05 of its potential returns per unit of risk. ASE Industrial Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  943.00  in ASE Industrial Holding on February 8, 2024 and sell it today you would earn a total of  96.00  from holding ASE Industrial Holding or generate 10.18% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  ASE Industrial Holding

Taiwan Semiconductor

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in June 2024.

ASE Industrial Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASE Industrial Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, ASE Industrial may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Taiwan Semiconductor and ASE Industrial

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

The idea behind Taiwan Semiconductor Manufacturing and ASE Industrial Holding 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.