Correlation Between Cheniere Energy and Tower Semiconductor

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

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

Diversification Opportunities for Cheniere Energy and Tower Semiconductor

0.8

Correlation Coefficient

Cheniere Energy  Tower Semiconductor

Very poor diversification

The 3 months correlation between Cheniere and Tower is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Cheniere Energy 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 Cheniere Energy 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 Cheniere Energy i.e., Cheniere Energy and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Cheniere Energy and Tower Semiconductor

Assuming the 90 days trading horizon Cheniere Energy is expected to under-perform the Tower Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Cheniere Energy is 1.5 times less risky than Tower Semiconductor. The stock trades about -0.13 of its potential returns per unit of risk. The Tower Semiconductor is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,504  in Tower Semiconductor on September 25, 2024 and sell it today you would earn a total of  292.00  from holding Tower Semiconductor or generate 6.48% return on investment over 90 days.

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

Cheniere Energy  vs.  Tower Semiconductor

Cheniere Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheniere Energy and Tower Semiconductor

The main advantage of trading using opposite Cheniere Energy and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheniere Energy 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 Cheniere Energy 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .