Correlation Between Taiwan Semiconductor and Zeng Hsing

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

Diversification Opportunities for Taiwan Semiconductor and Zeng Hsing

-0.68

Correlation Coefficient

Taiwan Semiconductor  Zeng Hsing

Excellent diversification

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

Pair Corralation between Taiwan Semiconductor and Zeng Hsing

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.39 times more return on investment than Zeng Hsing. However, Taiwan Semiconductor is 1.39 times more volatile than Zeng Hsing Industrial. It trades about 0.1 of its potential returns per unit of risk. Zeng Hsing Industrial is currently generating about 0.04 per unit of risk. If you would invest  103,104  in Taiwan Semiconductor Manufacturing on September 15, 2024 and sell it today you would earn a total of  3,396  from holding Taiwan Semiconductor Manufacturing or generate 3.29% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Zeng Hsing Industrial

Taiwan Semiconductor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Zeng Hsing Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zeng Hsing Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Taiwan Semiconductor and Zeng Hsing

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

The idea behind Taiwan Semiconductor Manufacturing and Zeng Hsing Industrial 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.