Correlation Between Haier Smart and Tower Semiconductor

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

By analyzing existing cross correlation between Haier Smart Home and Tower Semiconductor, you can compare the effects of market volatilities on Haier Smart and Tower 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 Haier Smart with a short position of Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Haier Smart and Tower Semiconductor.

Diversification Opportunities for Haier Smart and Tower Semiconductor

-0.04

Correlation Coefficient

Haier Smart  Tower Semiconductor

Good diversification

The 3 months correlation between Haier and Tower is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Haier Smart Home and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Haier Smart 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 Haier Smart Home are associated (or correlated) with Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Haier Smart i.e., Haier Smart and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Haier Smart and Tower Semiconductor

Assuming the 90 days trading horizon Haier Smart Home is expected to generate 0.91 times more return on investment than Tower Semiconductor. However, Haier Smart Home is 1.1 times less risky than Tower Semiconductor. It trades about 0.39 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.21 per unit of risk. If you would invest  163.00  in Haier Smart Home on October 5, 2024 and sell it today you would earn a total of  20.00  from holding Haier Smart Home or generate 12.27% return on investment over 90 days.

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

Haier Smart Home  vs.  Tower Semiconductor

Haier Smart Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Haier Smart Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Haier Smart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tower Semiconductor

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Tower Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Haier Smart and Tower Semiconductor

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

The idea behind Haier Smart Home and Tower Semiconductor 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.