Correlation Between Taiwan Semiconductor and Sinopac Financial

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

Diversification Opportunities for Taiwan Semiconductor and Sinopac Financial

0.02

Correlation Coefficient

Taiwan Semiconductor  Sinopac Financial

Significant diversification

The 3 months correlation between Taiwan and Sinopac is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Sinopac Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopac 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 Sinopac Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopac Financial has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Sinopac Financial go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Sinopac Financial

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.61 times more return on investment than Sinopac Financial. However, Taiwan Semiconductor is 1.61 times more volatile than Sinopac Financial Holdings. It trades about 0.13 of its potential returns per unit of risk. Sinopac Financial Holdings is currently generating about 0.06 per unit of risk. If you would invest  57,820  in Taiwan Semiconductor Manufacturing on October 14, 2024 and sell it today you would earn a total of  52,180  from holding Taiwan Semiconductor Manufacturing or generate 90.25% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Sinopac Financial Holdings

Taiwan Semiconductor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Semiconductor is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sinopac Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinopac Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Sinopac Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Semiconductor and Sinopac Financial

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

The idea behind Taiwan Semiconductor Manufacturing and Sinopac Financial Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.