Correlation Between Taiwan Semiconductor and Chemours

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

Diversification Opportunities for Taiwan Semiconductor and Chemours

0.72

Correlation Coefficient

Taiwan Semiconductor  Chemours

Poor diversification

The 3 months correlation between Taiwan and Chemours is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and The Chemours in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemours 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 Chemours. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemours has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Chemours go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Chemours

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 2.21 times more return on investment than Chemours. However, Taiwan Semiconductor is 2.21 times more volatile than The Chemours. It trades about 0.09 of its potential returns per unit of risk. The Chemours is currently generating about 0.2 per unit of risk. If you would invest  365,067  in Taiwan Semiconductor Manufacturing on September 26, 2024 and sell it today you would earn a total of  48,933  from holding Taiwan Semiconductor Manufacturing or generate 13.4% 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.  The Chemours

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) 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.

Chemours

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Chemours are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Chemours showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Chemours

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

The idea behind Taiwan Semiconductor Manufacturing and The Chemours 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.