Correlation Between Taiwan Semiconductor and Banco Santander

Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Banco Santander 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 Banco Santander 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 Banco Santander SA, you can compare the effects of market volatilities on Taiwan Semiconductor and Banco Santander 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 Banco Santander. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Banco Santander.

Diversification Opportunities for Taiwan Semiconductor and Banco Santander

0.73

Correlation Coefficient

Taiwan Semiconductor  Banco Santander

Poor diversification

The 3 months correlation between Taiwan and Banco is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Banco Santander SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander SA 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 Banco Santander. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Santander SA has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Banco Santander go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Banco Santander

Assuming the 90 days trading horizon Taiwan Semiconductor is expected to generate 1.58 times less return on investment than Banco Santander. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 1.34 times less risky than Banco Santander. It trades about 0.13 of its potential returns per unit of risk. Banco Santander SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,676  in Banco Santander SA on September 13, 2024 and sell it today you would earn a total of  236.00  from holding Banco Santander SA or generate 8.82% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Banco Santander SA

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. Despite somewhat weak primary indicators, Taiwan Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Banco Santander SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Banco Santander may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Semiconductor and Banco Santander

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

The idea behind Taiwan Semiconductor Manufacturing and Banco Santander SA 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.