Correlation Between Taiwan Semiconductor and Zijin Mining

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

Diversification Opportunities for Taiwan Semiconductor and Zijin Mining

0.66

Correlation Coefficient

Taiwan Semiconductor  Zijin Mining

Poor diversification

The 3 months correlation between Taiwan and Zijin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Zijin Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zijin Mining Group 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 Zijin Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zijin Mining Group has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Zijin Mining go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Zijin Mining

Considering the 90-day investment horizon Taiwan Semiconductor is expected to generate 1.49 times less return on investment than Zijin Mining. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 1.16 times less risky than Zijin Mining. It trades about 0.04 of its potential returns per unit of risk. Zijin Mining Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  230.00  in Zijin Mining Group on February 11, 2024 and sell it today you would earn a total of  5.00  from holding Zijin Mining Group or generate 2.17% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Zijin Mining Group

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.

Zijin Mining Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zijin Mining Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Zijin Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Zijin Mining

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

The idea behind Taiwan Semiconductor Manufacturing and Zijin Mining Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.