Correlation Between Taiwan Semiconductor and Uniper SE

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

Diversification Opportunities for Taiwan Semiconductor and Uniper SE

0.17

Correlation Coefficient

Taiwan Semiconductor  Uniper SE

Average diversification

The 3 months correlation between Taiwan and Uniper is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Uniper SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uniper SE 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 Uniper SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uniper SE has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Uniper SE go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Uniper SE

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.92 times more return on investment than Uniper SE. However, Taiwan Semiconductor Manufacturing is 1.08 times less risky than Uniper SE. It trades about 0.09 of its potential returns per unit of risk. Uniper SE is currently generating about 0.04 per unit of risk. If you would invest  16,140  in Taiwan Semiconductor Manufacturing on September 3, 2024 and sell it today you would earn a total of  2,340  from holding Taiwan Semiconductor Manufacturing or generate 14.5% 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.  Uniper SE

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

OK

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.

Uniper SE

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Uniper SE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Uniper SE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Semiconductor and Uniper SE

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

The idea behind Taiwan Semiconductor Manufacturing and Uniper SE 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.