Correlation Between Taiwan Semiconductor and Eastman Chemical

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

Diversification Opportunities for Taiwan Semiconductor and Eastman Chemical

-0.19

Correlation Coefficient

Taiwan Semiconductor  Eastman Chemical

Good diversification

The 3 months correlation between Taiwan and Eastman is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Eastman Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical 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 Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Eastman Chemical go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Eastman Chemical

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.97 times more return on investment than Eastman Chemical. However, Taiwan Semiconductor is 1.97 times more volatile than Eastman Chemical Co. It trades about 0.09 of its potential returns per unit of risk. Eastman Chemical Co is currently generating about -0.05 per unit of risk. If you would invest  16,980  in Taiwan Semiconductor Manufacturing on September 14, 2024 and sell it today you would earn a total of  2,315  from holding Taiwan Semiconductor Manufacturing or generate 13.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Eastman Chemical Co

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Taiwan Semiconductor disclosed solid returns over the last few months and may actually be approaching a breakup point.

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Taiwan Semiconductor and Eastman Chemical

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

The idea behind Taiwan Semiconductor Manufacturing and Eastman Chemical Co 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.