Correlation Between Taiwan Semiconductor and Sabre Insurance

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

Diversification Opportunities for Taiwan Semiconductor and Sabre Insurance

0.68

Correlation Coefficient

Taiwan Semiconductor  Sabre Insurance

Poor diversification

The 3 months correlation between Taiwan and Sabre is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Sabre Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabre Insurance Group 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 Sabre Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabre Insurance Group has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Sabre Insurance go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Sabre Insurance

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to under-perform the Sabre Insurance. In addition to that, Taiwan Semiconductor is 2.16 times more volatile than Sabre Insurance Group. It trades about -0.07 of its total potential returns per unit of risk. Sabre Insurance Group is currently generating about -0.11 per unit of volatility. If you would invest  13,880  in Sabre Insurance Group on December 24, 2024 and sell it today you would lose (1,360) from holding Sabre Insurance Group or give up 9.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Sabre Insurance Group

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Sabre Insurance Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sabre Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Taiwan Semiconductor and Sabre Insurance

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

The idea behind Taiwan Semiconductor Manufacturing and Sabre Insurance Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.