Correlation Between Alaska Air and Taiwan Semiconductor

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

By analyzing existing cross correlation between Alaska Air Group and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Alaska Air and Taiwan 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 Alaska Air with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Taiwan Semiconductor.

Diversification Opportunities for Alaska Air and Taiwan Semiconductor

0.66

Correlation Coefficient

Alaska Air  Taiwan Semiconductor

Poor diversification

The 3 months correlation between Alaska and Taiwan is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Alaska Air 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 Alaska Air Group are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Alaska Air i.e., Alaska Air and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Alaska Air and Taiwan Semiconductor

Assuming the 90 days trading horizon Alaska Air Group is expected to under-perform the Taiwan Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Alaska Air Group is 1.22 times less risky than Taiwan Semiconductor. The stock trades about -0.17 of its potential returns per unit of risk. The Taiwan Semiconductor Manufacturing is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  19,902  in Taiwan Semiconductor Manufacturing on December 23, 2024 and sell it today you would lose (3,542) from holding Taiwan Semiconductor Manufacturing or give up 17.8% of portfolio value over 90 days.

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

Alaska Air Group  vs.  Taiwan Semiconductor Manufactu

Alaska Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alaska Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alaska Air and Taiwan Semiconductor

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

The idea behind Alaska Air Group and Taiwan Semiconductor Manufacturing 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 Transaction History module to view history of all your transactions and understand their impact on performance.