Correlation Between Taiwan Semiconductor and Samsung Electronics

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

Diversification Opportunities for Taiwan Semiconductor and Samsung Electronics

-0.42

Correlation Coefficient

Taiwan Semiconductor  Samsung Electronics

Very good diversification

The 3 months correlation between Taiwan and Samsung is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Samsung Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samsung Electronics 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 Samsung Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samsung Electronics has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Samsung Electronics go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Samsung Electronics

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.63 times more return on investment than Samsung Electronics. However, Taiwan Semiconductor is 1.63 times more volatile than Samsung Electronics Co. It trades about -0.02 of its potential returns per unit of risk. Samsung Electronics Co is currently generating about -0.04 per unit of risk. If you would invest  19,305  in Taiwan Semiconductor Manufacturing on December 2, 2024 and sell it today you would lose (1,335) from holding Taiwan Semiconductor Manufacturing or give up 6.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Samsung Electronics Co

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 quite persistent essential indicators, Taiwan Semiconductor is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Samsung Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Samsung Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Samsung Electronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Taiwan Semiconductor and Samsung Electronics

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

The idea behind Taiwan Semiconductor Manufacturing and Samsung Electronics Co 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.