Correlation Between Taiwan Semiconductor and Knowles Cor

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

Diversification Opportunities for Taiwan Semiconductor and Knowles Cor

0.03

Correlation Coefficient

Taiwan Semiconductor  Knowles Cor

Significant diversification

The 3 months correlation between Taiwan and Knowles is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Knowles Cor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowles Cor 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 Knowles Cor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowles Cor has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Knowles Cor go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Knowles Cor

Considering the 90-day investment horizon Taiwan Semiconductor is expected to generate 1.74 times less return on investment than Knowles Cor. In addition to that, Taiwan Semiconductor is 1.52 times more volatile than Knowles Cor. It trades about 0.11 of its total potential returns per unit of risk. Knowles Cor is currently generating about 0.28 per unit of volatility. If you would invest  1,581  in Knowles Cor on February 12, 2024 and sell it today you would earn a total of  144.00  from holding Knowles Cor or generate 9.11% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Knowles Cor

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

Knowles Cor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Knowles Cor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Knowles Cor may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Taiwan Semiconductor and Knowles Cor

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

The idea behind Taiwan Semiconductor Manufacturing and Knowles Cor 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.