Correlation Between Citigroup and Taiwan Semiconductor

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

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

Diversification Opportunities for Citigroup and Taiwan Semiconductor

0.63

Correlation Coefficient

Citigroup  Taiwan Semiconductor

Poor diversification

The 3 months correlation between Citigroup and Taiwan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Citigroup and Taiwan Semiconductor

Given the investment horizon of 90 days Citigroup is expected to generate 0.79 times more return on investment than Taiwan Semiconductor. However, Citigroup is 1.27 times less risky than Taiwan Semiconductor. It trades about 0.14 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.09 per unit of risk. If you would invest  120,276  in Citigroup on September 26, 2024 and sell it today you would earn a total of  22,625  from holding Citigroup or generate 18.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Citigroup  vs.  Taiwan Semiconductor Manufactu

Citigroup

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Citigroup showed solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Taiwan Semiconductor

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

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.