Correlation Between Advanced Micro and Tower Semiconductor

Can any of the company-specific risk be diversified away by investing in both Advanced Micro 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 Advanced Micro and Tower Semiconductor 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 Tower Semiconductor, you can compare the effects of market volatilities on Advanced Micro 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 Advanced Micro with a short position of Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Micro and Tower Semiconductor.

Diversification Opportunities for Advanced Micro and Tower Semiconductor

-0.72

Correlation Coefficient

Advanced Micro  Tower Semiconductor

Pay attention - limited upside

The 3 months correlation between Advanced and Tower is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Micro Devices and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 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 Advanced Micro i.e., Advanced Micro and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Advanced Micro and Tower Semiconductor

Assuming the 90 days trading horizon Advanced Micro Devices is expected to under-perform the Tower Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Micro Devices is 1.13 times less risky than Tower Semiconductor. The stock trades about -0.05 of its potential returns per unit of risk. The Tower Semiconductor is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,610  in Tower Semiconductor on September 29, 2024 and sell it today you would earn a total of  1,219  from holding Tower Semiconductor or generate 33.77% return on investment over 90 days.

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

Advanced Micro Devices  vs.  Tower Semiconductor

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. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Tower Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. 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 Advanced Micro and Tower Semiconductor

The main advantage of trading using opposite Advanced Micro and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Micro 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 Advanced Micro Devices 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.