Correlation Between Taiwan Semiconductor and Arima Communications

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

Diversification Opportunities for Taiwan Semiconductor and Arima Communications

0.04

Correlation Coefficient

Taiwan Semiconductor  Arima Communications

Significant diversification

The 3 months correlation between Taiwan and Arima is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Arima Communications Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arima Communications Corp 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 Arima Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arima Communications Corp has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Arima Communications go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Arima Communications

Assuming the 90 days trading horizon Taiwan Semiconductor is expected to generate 12.23 times less return on investment than Arima Communications. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 1.93 times less risky than Arima Communications. It trades about 0.06 of its potential returns per unit of risk. Arima Communications Corp is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  950.00  in Arima Communications Corp on September 3, 2024 and sell it today you would earn a total of  1,260  from holding Arima Communications Corp or generate 132.63% 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.  Arima Communications Corp

Taiwan Semiconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arima Communications Corp

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Arima Communications Corp are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arima Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Arima Communications

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

The idea behind Taiwan Semiconductor Manufacturing and Arima Communications Corp 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.