Correlation Between Advanced Micro and Semiconductor Manufacturing

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

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

Diversification Opportunities for Advanced Micro and Semiconductor Manufacturing

-0.54

Correlation Coefficient

Advanced Micro  Semiconductor Manufacturing

Excellent diversification

The 3 months correlation between Advanced and Semiconductor is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Micro Devices and Semiconductor Manufacturing In in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Manufacturing and Advanced Micro 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 Advanced Micro Devices are associated (or correlated) with Semiconductor Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Manufacturing has no effect on the direction of Advanced Micro i.e., Advanced Micro and Semiconductor Manufacturing go up and down completely randomly.

Pair Corralation between Advanced Micro and Semiconductor Manufacturing

Assuming the 90 days horizon Advanced Micro Devices is expected to under-perform the Semiconductor Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Micro Devices is 1.71 times less risky than Semiconductor Manufacturing. The stock trades about -0.15 of its potential returns per unit of risk. The Semiconductor Manufacturing International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  306.00  in Semiconductor Manufacturing International on October 9, 2024 and sell it today you would earn a total of  34.00  from holding Semiconductor Manufacturing International or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Advanced Micro Devices  vs.  Semiconductor Manufacturing In

Advanced Micro Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Micro Devices 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 basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Semiconductor Manufacturing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Semiconductor Manufacturing International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Semiconductor Manufacturing reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Micro and Semiconductor Manufacturing

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

The idea behind Advanced Micro Devices and Semiconductor Manufacturing International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.