Correlation Between Taiwan Semiconductor and ECD Automotive

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

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

Diversification Opportunities for Taiwan Semiconductor and ECD Automotive

-0.26

Correlation Coefficient

Taiwan Semiconductor  ECD Automotive

Very good diversification

The 3 months correlation between Taiwan and ECD is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and Taiwan Semiconductor 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 Taiwan Semiconductor Manufacturing are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and ECD Automotive go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and ECD Automotive

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 0.1 times more return on investment than ECD Automotive. However, Taiwan Semiconductor Manufacturing is 9.59 times less risky than ECD Automotive. It trades about 0.11 of its potential returns per unit of risk. ECD Automotive Design is currently generating about -0.05 per unit of risk. If you would invest  19,156  in Taiwan Semiconductor Manufacturing on September 5, 2024 and sell it today you would earn a total of  913.00  from holding Taiwan Semiconductor Manufacturing or generate 4.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	31.82%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  ECD Automotive Design

Taiwan Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly conflicting basic indicators, ECD Automotive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and ECD Automotive

The main advantage of trading using opposite Taiwan Semiconductor and ECD Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Semiconductor position performs unexpectedly, ECD Automotive 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 ECD Automotive will offset losses from the drop in ECD Automotive's long position.

The idea behind Taiwan Semiconductor Manufacturing and ECD Automotive Design 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.