Correlation Between Taiwan Semiconductor and CoAsia Microelectronics

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

Diversification Opportunities for Taiwan Semiconductor and CoAsia Microelectronics

-0.73

Correlation Coefficient

Taiwan Semiconductor  CoAsia Microelectronics

Pay attention - limited upside

The 3 months correlation between Taiwan and CoAsia is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and CoAsia Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoAsia Microelectronics 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 CoAsia Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoAsia Microelectronics has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and CoAsia Microelectronics go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and CoAsia Microelectronics

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.57 times more return on investment than CoAsia Microelectronics. However, Taiwan Semiconductor Manufacturing is 1.74 times less risky than CoAsia Microelectronics. It trades about 0.16 of its potential returns per unit of risk. CoAsia Microelectronics is currently generating about -0.1 per unit of risk. If you would invest  89,800  in Taiwan Semiconductor Manufacturing on September 5, 2024 and sell it today you would earn a total of  15,700  from holding Taiwan Semiconductor Manufacturing or generate 17.48% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  CoAsia Microelectronics

Taiwan Semiconductor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 12 (%) 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.

CoAsia Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CoAsia Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Taiwan Semiconductor and CoAsia Microelectronics

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

The idea behind Taiwan Semiconductor Manufacturing and CoAsia Microelectronics 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.