Correlation Between Taiwan Semiconductor and Silicon Power

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

Diversification Opportunities for Taiwan Semiconductor and Silicon Power

-0.33

Correlation Coefficient

Taiwan Semiconductor  Silicon Power

Very good diversification

The 3 months correlation between Taiwan and Silicon is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Silicon Power Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Power Computer 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 Silicon Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Power Computer has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Silicon Power go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Silicon Power

Assuming the 90 days trading horizon Taiwan Semiconductor is expected to generate 4.11 times less return on investment than Silicon Power. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 1.14 times less risky than Silicon Power. It trades about 0.05 of its potential returns per unit of risk. Silicon Power Computer is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,080  in Silicon Power Computer on September 4, 2024 and sell it today you would earn a total of  215.00  from holding Silicon Power Computer or generate 6.98% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Silicon Power Computer

Taiwan Semiconductor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 13 (%) 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.

Silicon Power Computer

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Power Computer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Silicon Power 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 Silicon Power

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

The idea behind Taiwan Semiconductor Manufacturing and Silicon Power Computer 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.