Correlation Between MGIC Investment and Taiwan Semiconductor

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

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

Diversification Opportunities for MGIC Investment and Taiwan Semiconductor

-0.45

Correlation Coefficient

MGIC Investment  Taiwan Semiconductor

Very good diversification

The 3 months correlation between MGIC and Taiwan is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding MGIC Investment Corp and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and MGIC Investment 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 MGIC Investment Corp 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 MGIC Investment i.e., MGIC Investment and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between MGIC Investment and Taiwan Semiconductor

Considering the 90-day investment horizon MGIC Investment is expected to generate 3.37 times less return on investment than Taiwan Semiconductor. But when comparing it to its historical volatility, MGIC Investment Corp is 2.42 times less risky than Taiwan Semiconductor. It trades about 0.1 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  438.00  in Taiwan Semiconductor Manufacturing on September 21, 2024 and sell it today you would earn a total of  1,286  from holding Taiwan Semiconductor Manufacturing or generate 293.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	67.68%
Values	Daily Returns

MGIC Investment Corp  vs.  Taiwan Semiconductor Manufactu

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Taiwan Semiconductor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGIC Investment and Taiwan Semiconductor

The main advantage of trading using opposite MGIC Investment and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGIC Investment 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 MGIC Investment Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.