Correlation Between Taiwan Semiconductor and Niko Semiconductor

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

Diversification Opportunities for Taiwan Semiconductor and Niko Semiconductor

-0.14

Correlation Coefficient

Taiwan Semiconductor  Niko Semiconductor

Good diversification

The 3 months correlation between Taiwan and Niko is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Co and Niko Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Niko Semiconductor 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 Niko Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Niko Semiconductor has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Niko Semiconductor go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Niko Semiconductor

Assuming the 90 days trading horizon Taiwan Semiconductor Co is expected to under-perform the Niko Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Semiconductor Co is 1.05 times less risky than Niko Semiconductor. The stock trades about -0.02 of its potential returns per unit of risk. The Niko Semiconductor Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,850  in Niko Semiconductor Co on September 13, 2024 and sell it today you would earn a total of  290.00  from holding Niko Semiconductor Co or generate 5.98% return on investment over 90 days.

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

Taiwan Semiconductor Co  vs.  Niko Semiconductor Co

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 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.

Niko Semiconductor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Niko Semiconductor Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Niko Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Semiconductor and Niko Semiconductor

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

The idea behind Taiwan Semiconductor Co and Niko Semiconductor 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.

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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.