Correlation Between Taiwan Semiconductor and Shin Kong

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

Diversification Opportunities for Taiwan Semiconductor and Shin Kong

-0.8

Correlation Coefficient

Taiwan Semiconductor  Shin Kong

Pay attention - limited upside

The 3 months correlation between Taiwan and Shin is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Shin Kong Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Kong Financial 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 Shin Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Kong Financial has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Shin Kong go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Shin Kong

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 3.62 times more return on investment than Shin Kong. However, Taiwan Semiconductor is 3.62 times more volatile than Shin Kong Financial. It trades about 0.1 of its potential returns per unit of risk. Shin Kong Financial is currently generating about -0.16 per unit of risk. If you would invest  94,700  in Taiwan Semiconductor Manufacturing on September 13, 2024 and sell it today you would earn a total of  9,800  from holding Taiwan Semiconductor Manufacturing or generate 10.35% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Shin Kong Financial

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shin Kong Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Taiwan Semiconductor and Shin Kong

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

The idea behind Taiwan Semiconductor Manufacturing and Shin Kong Financial 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.