Correlation Between Taiwan Semiconductor and Fubon Taiwan

Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and Fubon Taiwan 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 Fubon Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Semiconductor Co and Fubon Taiwan Technology, you can compare the effects of market volatilities on Taiwan Semiconductor and Fubon Taiwan 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 Fubon Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and Fubon Taiwan.

Diversification Opportunities for Taiwan Semiconductor and Fubon Taiwan

0.08

Correlation Coefficient

Taiwan Semiconductor  Fubon Taiwan

Significant diversification

The 3 months correlation between Taiwan and Fubon is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Co and Fubon Taiwan Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon Taiwan 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 Co are associated (or correlated) with Fubon Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon Taiwan Technology has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Fubon Taiwan go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Fubon Taiwan

Assuming the 90 days trading horizon Taiwan Semiconductor Co is expected to under-perform the Fubon Taiwan. In addition to that, Taiwan Semiconductor is 1.48 times more volatile than Fubon Taiwan Technology. It trades about -0.06 of its total potential returns per unit of risk. Fubon Taiwan Technology is currently generating about 0.12 per unit of volatility. If you would invest  17,490  in Fubon Taiwan Technology on September 15, 2024 and sell it today you would earn a total of  1,705  from holding Fubon Taiwan Technology or generate 9.75% return on investment over 90 days.

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

Taiwan Semiconductor Co  vs.  Fubon Taiwan Technology

Taiwan Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Semiconductor Co 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.

Fubon Taiwan Technology

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Taiwan Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Fubon Taiwan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Semiconductor and Fubon Taiwan

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

The idea behind Taiwan Semiconductor Co and Fubon Taiwan Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..