Correlation Between Pinduoduo and Taiwan Semiconductor

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

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

Diversification Opportunities for Pinduoduo and Taiwan Semiconductor

-0.54

Correlation Coefficient

Pinduoduo  Taiwan Semiconductor

Excellent diversification

The 3 months correlation between Pinduoduo and Taiwan is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Pinduoduo and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Pinduoduo 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 Pinduoduo 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 Pinduoduo i.e., Pinduoduo and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Pinduoduo and Taiwan Semiconductor

Assuming the 90 days trading horizon Pinduoduo is expected to generate 11.42 times less return on investment than Taiwan Semiconductor. In addition to that, Pinduoduo is 1.5 times more volatile than Taiwan Semiconductor Manufacturing. It trades about 0.02 of its total potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.28 per unit of volatility. If you would invest  17,422  in Taiwan Semiconductor Manufacturing on September 27, 2024 and sell it today you would earn a total of  2,558  from holding Taiwan Semiconductor Manufacturing or generate 14.68% return on investment over 90 days.

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

Pinduoduo  vs.  Taiwan Semiconductor Manufactu

Pinduoduo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pinduoduo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite nearly fragile technical and fundamental indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pinduoduo and Taiwan Semiconductor

The main advantage of trading using opposite Pinduoduo and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinduoduo 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 Pinduoduo and Taiwan Semiconductor Manufacturing 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.