Correlation Between Taiwan Semiconductor and Answer Technology

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

Diversification Opportunities for Taiwan Semiconductor and Answer Technology

-0.45

Correlation Coefficient

Taiwan Semiconductor  Answer Technology

Very good diversification

The 3 months correlation between Taiwan and Answer is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Answer Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Answer Technology 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 Answer Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Answer Technology has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Answer Technology go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Answer Technology

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.58 times more return on investment than Answer Technology. However, Taiwan Semiconductor is 1.58 times more volatile than Answer Technology Co. It trades about 0.12 of its potential returns per unit of risk. Answer Technology Co is currently generating about -0.04 per unit of risk. If you would invest  94,338  in Taiwan Semiconductor Manufacturing on September 16, 2024 and sell it today you would earn a total of  12,162  from holding Taiwan Semiconductor Manufacturing or generate 12.89% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Answer Technology Co

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.

Answer Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Answer Technology Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Answer Technology 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 Answer Technology

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

The idea behind Taiwan Semiconductor Manufacturing and Answer Technology Co 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.