Correlation Between Advanced Micro and Taiwan Semiconductor

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

Diversification Opportunities for Advanced Micro and Taiwan Semiconductor

0.78

Correlation Coefficient

Advanced Micro  Taiwan Semiconductor

Poor diversification

The 3 months correlation between Advanced and Taiwan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Micro Devices and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan 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 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 Advanced Micro i.e., Advanced Micro and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Advanced Micro and Taiwan Semiconductor

Considering the 90-day investment horizon Advanced Micro Devices is expected to generate 0.88 times more return on investment than Taiwan Semiconductor. However, Advanced Micro Devices is 1.14 times less risky than Taiwan Semiconductor. It trades about -0.07 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.08 per unit of risk. If you would invest  12,244  in Advanced Micro Devices on December 29, 2024 and sell it today you would lose (1,579) from holding Advanced Micro Devices or give up 12.9% of portfolio value over 90 days.

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

Advanced Micro Devices  vs.  Taiwan Semiconductor Manufactu

Advanced Micro Devices

Risk-Adjusted Performance

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 latest unfluctuating performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Advanced Micro and Taiwan Semiconductor

The main advantage of trading using opposite Advanced Micro and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Micro 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 Advanced Micro Devices 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.