Correlation Between Taiwan Semiconductor and Lingsen Precision

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

Diversification Opportunities for Taiwan Semiconductor and Lingsen Precision

0.29

Correlation Coefficient

Taiwan Semiconductor  Lingsen Precision

Modest diversification

The 3 months correlation between Taiwan and Lingsen is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Lingsen Precision Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingsen Precision 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 Lingsen Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingsen Precision has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Lingsen Precision go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Lingsen Precision

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.7 times more return on investment than Lingsen Precision. However, Taiwan Semiconductor Manufacturing is 1.42 times less risky than Lingsen Precision. It trades about 0.13 of its potential returns per unit of risk. Lingsen Precision Industries is currently generating about -0.01 per unit of risk. If you would invest  94,000  in Taiwan Semiconductor Manufacturing on September 12, 2024 and sell it today you would earn a total of  12,500  from holding Taiwan Semiconductor Manufacturing or generate 13.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Lingsen Precision Industries

Taiwan Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Lingsen Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lingsen Precision Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lingsen Precision is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Semiconductor and Lingsen Precision

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

The idea behind Taiwan Semiconductor Manufacturing and Lingsen Precision Industries 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.