Correlation Between Taiwan Semiconductor and Shanghai Commercial

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

Diversification Opportunities for Taiwan Semiconductor and Shanghai Commercial

0.62

Correlation Coefficient

Taiwan Semiconductor  Shanghai Commercial

Poor diversification

The 3 months correlation between Taiwan and Shanghai is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Shanghai Commercial Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Commercial 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 Shanghai Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Commercial has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Shanghai Commercial go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Shanghai Commercial

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.33 times more return on investment than Shanghai Commercial. However, Taiwan Semiconductor is 1.33 times more volatile than Shanghai Commercial Savings. It trades about 0.09 of its potential returns per unit of risk. Shanghai Commercial Savings is currently generating about -0.01 per unit of risk. If you would invest  106,500  in Taiwan Semiconductor Manufacturing on October 14, 2024 and sell it today you would earn a total of  3,500  from holding Taiwan Semiconductor Manufacturing or generate 3.29% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Shanghai Commercial Savings

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.

Shanghai Commercial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Commercial Savings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Shanghai Commercial is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Semiconductor and Shanghai Commercial

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

The idea behind Taiwan Semiconductor Manufacturing and Shanghai Commercial Savings 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.