Correlation Between Taiwan Semiconductor and Citigroup

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

Diversification Opportunities for Taiwan Semiconductor and Citigroup

0.66

Correlation Coefficient

Taiwan Semiconductor  Citigroup

Poor diversification

The 3 months correlation between Taiwan and Citigroup is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Citigroup go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Citigroup

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.16 times more return on investment than Citigroup. However, Taiwan Semiconductor is 1.16 times more volatile than Citigroup. It trades about 0.15 of its potential returns per unit of risk. Citigroup is currently generating about 0.16 per unit of risk. If you would invest  324,299  in Taiwan Semiconductor Manufacturing on September 5, 2024 and sell it today you would earn a total of  79,595  from holding Taiwan Semiconductor Manufacturing or generate 24.54% 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.  Citigroup

Taiwan Semiconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 11 (%) 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.

Citigroup

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 12 (%) 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.

Pair Trading with Taiwan Semiconductor and Citigroup

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

The idea behind Taiwan Semiconductor Manufacturing and Citigroup 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.