Correlation Between MACOM Technology and Taiwan Semiconductor

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

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

Diversification Opportunities for MACOM Technology and Taiwan Semiconductor

0.63

Correlation Coefficient

MACOM Technology  Taiwan Semiconductor

Poor diversification

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

Pair Corralation between MACOM Technology and Taiwan Semiconductor

Given the investment horizon of 90 days MACOM Technology Solutions is expected to generate 1.12 times more return on investment than Taiwan Semiconductor. However, MACOM Technology is 1.12 times more volatile than Taiwan Semiconductor Manufacturing. It trades about 0.19 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.12 per unit of risk. If you would invest  10,094  in MACOM Technology Solutions on September 15, 2024 and sell it today you would earn a total of  3,810  from holding MACOM Technology Solutions or generate 37.75% return on investment over 90 days.

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

MACOM Technology Solutions  vs.  Taiwan Semiconductor Manufactu

MACOM Technology Sol

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, MACOM Technology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of very uncertain basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MACOM Technology and Taiwan Semiconductor

The main advantage of trading using opposite MACOM Technology and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MACOM Technology 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 MACOM Technology Solutions 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.