Correlation Between Taiwan Semiconductor and Sage Group

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

Diversification Opportunities for Taiwan Semiconductor and Sage Group

0.27

Correlation Coefficient

Taiwan Semiconductor  Sage Group

Modest diversification

The 3 months correlation between Taiwan and Sage is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group PLC 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 Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Sage Group go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Sage Group

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.47 times more return on investment than Sage Group. However, Taiwan Semiconductor is 1.47 times more volatile than Sage Group PLC. It trades about 0.12 of its potential returns per unit of risk. Sage Group PLC is currently generating about 0.03 per unit of risk. If you would invest  10,178  in Taiwan Semiconductor Manufacturing on October 8, 2024 and sell it today you would earn a total of  10,312  from holding Taiwan Semiconductor Manufacturing or generate 101.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Sage Group PLC

Taiwan Semiconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sage Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Sage Group

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

The idea behind Taiwan Semiconductor Manufacturing and Sage Group PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.