Correlation Between Taiwan Semiconductor and Golden Metal

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

Diversification Opportunities for Taiwan Semiconductor and Golden Metal

0.11

Correlation Coefficient

Taiwan Semiconductor  Golden Metal

Average diversification

The 3 months correlation between Taiwan and Golden is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Golden Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Metal Resources 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 Golden Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Metal Resources has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Golden Metal go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Golden Metal

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.68 times more return on investment than Golden Metal. However, Taiwan Semiconductor Manufacturing is 1.47 times less risky than Golden Metal. It trades about 0.2 of its potential returns per unit of risk. Golden Metal Resources is currently generating about 0.04 per unit of risk. If you would invest  18,420  in Taiwan Semiconductor Manufacturing on September 19, 2024 and sell it today you would earn a total of  1,725  from holding Taiwan Semiconductor Manufacturing or generate 9.36% 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.  Golden Metal Resources

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.

Golden Metal Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Metal Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Golden Metal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Golden Metal

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

The idea behind Taiwan Semiconductor Manufacturing and Golden Metal Resources 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.