Correlation Between Canadian Solar and Tower Semiconductor

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

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

Diversification Opportunities for Canadian Solar and Tower Semiconductor

-0.58

Correlation Coefficient

Canadian Solar  Tower Semiconductor

Excellent diversification

The 3 months correlation between Canadian and Tower is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Solar and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Canadian Solar 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 Canadian Solar 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 Canadian Solar i.e., Canadian Solar and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Canadian Solar and Tower Semiconductor

Given the investment horizon of 90 days Canadian Solar is expected to under-perform the Tower Semiconductor. In addition to that, Canadian Solar is 2.23 times more volatile than Tower Semiconductor. It trades about -0.02 of its total potential returns per unit of risk. Tower Semiconductor is currently generating about 0.23 per unit of volatility. If you would invest  4,860  in Tower Semiconductor on October 8, 2024 and sell it today you would earn a total of  350.00  from holding Tower Semiconductor or generate 7.2% return on investment over 90 days.

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

Canadian Solar  vs.  Tower Semiconductor

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Tower Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Tower Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Solar and Tower Semiconductor

The main advantage of trading using opposite Canadian Solar and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Solar 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 Canadian Solar 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.