Correlation Between ASE Industrial and Tower Semiconductor

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

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

Diversification Opportunities for ASE Industrial and Tower Semiconductor

0.07

Correlation Coefficient

ASE Industrial  Tower Semiconductor

Significant diversification

The 3 months correlation between ASE and Tower is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and ASE Industrial 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 ASE Industrial Holding 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 ASE Industrial i.e., ASE Industrial and Tower Semiconductor go up and down completely randomly.

Pair Corralation between ASE Industrial and Tower Semiconductor

Considering the 90-day investment horizon ASE Industrial Holding is expected to generate 0.9 times more return on investment than Tower Semiconductor. However, ASE Industrial Holding is 1.12 times less risky than Tower Semiconductor. It trades about 0.02 of its potential returns per unit of risk. Tower Semiconductor is currently generating about -0.05 per unit of risk. If you would invest  1,001  in ASE Industrial Holding on December 1, 2024 and sell it today you would earn a total of  12.00  from holding ASE Industrial Holding or generate 1.2% return on investment over 90 days.

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

ASE Industrial Holding  vs.  Tower Semiconductor

ASE Industrial Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ASE Industrial Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ASE Industrial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Tower Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tower Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with ASE Industrial and Tower Semiconductor

The main advantage of trading using opposite ASE Industrial and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASE Industrial 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 ASE Industrial Holding 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..