Correlation Between MagnaChip Semiconductor and Taiwan Semiconductor

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

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

Diversification Opportunities for MagnaChip Semiconductor and Taiwan Semiconductor

-0.36

Correlation Coefficient

MagnaChip Semiconductor  Taiwan Semiconductor

Very good diversification

The 3 months correlation between MagnaChip and Taiwan is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and Taiwan Semiconductor

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the Taiwan Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, MagnaChip Semiconductor is 1.43 times less risky than Taiwan Semiconductor. The stock trades about -0.07 of its potential returns per unit of risk. The Taiwan Semiconductor Manufacturing is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  438.00  in Taiwan Semiconductor Manufacturing on October 7, 2024 and sell it today you would earn a total of  1,286  from holding Taiwan Semiconductor Manufacturing or generate 293.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	69.56%
Values	Daily Returns

MagnaChip Semiconductor  vs.  Taiwan Semiconductor Manufactu

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Taiwan Semiconductor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MagnaChip Semiconductor and Taiwan Semiconductor

The main advantage of trading using opposite MagnaChip Semiconductor and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.