Correlation Between Hung Sheng and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both Hung Sheng and Taiwan Semiconductor 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 Hung Sheng and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hung Sheng Construction and Taiwan Semiconductor Co, you can compare the effects of market volatilities on Hung Sheng and Taiwan Semiconductor 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 Hung Sheng with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hung Sheng and Taiwan Semiconductor.

Diversification Opportunities for Hung Sheng and Taiwan Semiconductor

0.15

Correlation Coefficient

Hung Sheng  Taiwan Semiconductor

Average diversification

The 3 months correlation between Hung and Taiwan is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Hung Sheng Construction and Taiwan Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Hung Sheng 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 Hung Sheng Construction are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Hung Sheng i.e., Hung Sheng and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Hung Sheng and Taiwan Semiconductor

Assuming the 90 days trading horizon Hung Sheng Construction is expected to generate 0.84 times more return on investment than Taiwan Semiconductor. However, Hung Sheng Construction is 1.19 times less risky than Taiwan Semiconductor. It trades about 0.01 of its potential returns per unit of risk. Taiwan Semiconductor Co is currently generating about -0.07 per unit of risk. If you would invest  2,705  in Hung Sheng Construction on September 2, 2024 and sell it today you would lose (10.00) from holding Hung Sheng Construction or give up 0.37% of portfolio value over 90 days.

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

Hung Sheng Construction  vs.  Taiwan Semiconductor Co

Hung Sheng Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taiwan Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Semiconductor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Hung Sheng and Taiwan Semiconductor

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

The idea behind Hung Sheng Construction and Taiwan Semiconductor Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.