Correlation Between Food Life and Tower Semiconductor

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

By analyzing existing cross correlation between Food Life Companies and Tower Semiconductor, you can compare the effects of market volatilities on Food Life and Tower 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 Food Life with a short position of Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and Tower Semiconductor.

Diversification Opportunities for Food Life and Tower Semiconductor

0.89

Correlation Coefficient

Food Life  Tower Semiconductor

Very poor diversification

The 3 months correlation between Food and Tower is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Food Life 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 Food Life Companies are associated (or correlated) with Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Food Life i.e., Food Life and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Food Life and Tower Semiconductor

Assuming the 90 days horizon Food Life is expected to generate 1.07 times less return on investment than Tower Semiconductor. But when comparing it to its historical volatility, Food Life Companies is 1.35 times less risky than Tower Semiconductor. It trades about 0.31 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  4,357  in Tower Semiconductor on September 21, 2024 and sell it today you would earn a total of  562.00  from holding Tower Semiconductor or generate 12.9% return on investment over 90 days.

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

Food Life Companies  vs.  Tower Semiconductor

Food Life Companies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Tower Semiconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Food Life and Tower Semiconductor

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

The idea behind Food Life Companies and Tower Semiconductor 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.