Correlation Between Taiwan Semiconductor and XLMedia PLC

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

Diversification Opportunities for Taiwan Semiconductor and XLMedia PLC

-0.59

Correlation Coefficient

Taiwan Semiconductor  XLMedia PLC

Excellent diversification

The 3 months correlation between Taiwan and XLMedia is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and XLMedia PLC go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and XLMedia PLC

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.4 times more return on investment than XLMedia PLC. However, Taiwan Semiconductor Manufacturing is 2.51 times less risky than XLMedia PLC. It trades about 0.09 of its potential returns per unit of risk. XLMedia PLC is currently generating about 0.0 per unit of risk. If you would invest  8,949  in Taiwan Semiconductor Manufacturing on October 26, 2024 and sell it today you would earn a total of  13,251  from holding Taiwan Semiconductor Manufacturing or generate 148.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  XLMedia PLC

Taiwan Semiconductor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Taiwan Semiconductor disclosed solid returns over the last few months and may actually be approaching a breakup point.

XLMedia PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XLMedia PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, XLMedia PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Taiwan Semiconductor and XLMedia PLC

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

The idea behind Taiwan Semiconductor Manufacturing and XLMedia 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..