Correlation Between First Majestic and Taiwan Semiconductor

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

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

Diversification Opportunities for First Majestic and Taiwan Semiconductor

-0.73

Correlation Coefficient

First Majestic  Taiwan Semiconductor

Pay attention - limited upside

The 3 months correlation between First and Taiwan is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and First Majestic 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 First Majestic Silver 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 First Majestic i.e., First Majestic and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between First Majestic and Taiwan Semiconductor

Assuming the 90 days horizon First Majestic Silver is expected to generate 0.38 times more return on investment than Taiwan Semiconductor. However, First Majestic Silver is 2.6 times less risky than Taiwan Semiconductor. It trades about 0.2 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.1 per unit of risk. If you would invest  45,839  in First Majestic Silver on December 29, 2024 and sell it today you would earn a total of  6,390  from holding First Majestic Silver or generate 13.94% return on investment over 90 days.

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

First Majestic Silver  vs.  Taiwan Semiconductor Manufactu

First Majestic Silver

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Majestic Silver are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, First Majestic showed solid returns over the last few months and may actually be approaching a breakup point.

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 fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First Majestic and Taiwan Semiconductor

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

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.