Correlation Between Westlake Chemical and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both Westlake Chemical and Taiwan Semiconductor 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 Westlake Chemical and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Westlake Chemical Corp and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Westlake Chemical and Taiwan Semiconductor 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 Westlake Chemical with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westlake Chemical and Taiwan Semiconductor.

Diversification Opportunities for Westlake Chemical and Taiwan Semiconductor

-0.07

Correlation Coefficient

Westlake Chemical  Taiwan Semiconductor

Good diversification

The 3 months correlation between Westlake and Taiwan is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical Corp and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Westlake Chemical 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 Westlake Chemical Corp are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Westlake Chemical and Taiwan Semiconductor

Assuming the 90 days trading horizon Westlake Chemical Corp is expected to generate 0.89 times more return on investment than Taiwan Semiconductor. However, Westlake Chemical Corp is 1.12 times less risky than Taiwan Semiconductor. It trades about 0.03 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.35 per unit of risk. If you would invest  10,976  in Westlake Chemical Corp on December 5, 2024 and sell it today you would earn a total of  92.00  from holding Westlake Chemical Corp or generate 0.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Westlake Chemical Corp  vs.  Taiwan Semiconductor Manufactu

Westlake Chemical Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westlake Chemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

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 latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Westlake Chemical and Taiwan Semiconductor

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

The idea behind Westlake Chemical Corp and Taiwan Semiconductor Manufacturing 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 Anywhere module to track or share privately all of your investments from the convenience of any device.