Correlation Between Arm Holdings and Tower Semiconductor

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

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

Diversification Opportunities for Arm Holdings and Tower Semiconductor

-0.08

Correlation Coefficient

Arm Holdings  Tower Semiconductor

Good diversification

The 3 months correlation between Arm and Tower is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Arm Holdings plc and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Arm Holdings 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 Arm Holdings plc 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 Arm Holdings i.e., Arm Holdings and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Arm Holdings and Tower Semiconductor

Considering the 90-day investment horizon Arm Holdings is expected to generate 4.22 times less return on investment than Tower Semiconductor. In addition to that, Arm Holdings is 1.13 times more volatile than Tower Semiconductor. It trades about 0.03 of its total potential returns per unit of risk. Tower Semiconductor is currently generating about 0.14 per unit of volatility. If you would invest  4,231  in Tower Semiconductor on September 20, 2024 and sell it today you would earn a total of  1,014  from holding Tower Semiconductor or generate 23.97% return on investment over 90 days.

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

Arm Holdings plc  vs.  Tower Semiconductor

Arm Holdings plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arm Holdings plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Arm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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. In spite of very inconsistent technical and fundamental indicators, Tower Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arm Holdings and Tower Semiconductor

The main advantage of trading using opposite Arm Holdings and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arm Holdings 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 Arm Holdings plc 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.