Correlation Between The9 and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both The9 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 The9 and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The9 Ltd ADR and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on The9 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 The9 with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of The9 and Taiwan Semiconductor.

Diversification Opportunities for The9 and Taiwan Semiconductor

0.5

Correlation Coefficient

The9  Taiwan Semiconductor

Very weak diversification

The 3 months correlation between The9 and Taiwan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding The9 Ltd ADR and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and The9 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 The9 Ltd ADR 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 The9 i.e., The9 and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between The9 and Taiwan Semiconductor

Given the investment horizon of 90 days The9 Ltd ADR is expected to generate 3.67 times more return on investment than Taiwan Semiconductor. However, The9 is 3.67 times more volatile than Taiwan Semiconductor Manufacturing. It trades about 0.46 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.02 per unit of risk. If you would invest  891.00  in The9 Ltd ADR on September 12, 2024 and sell it today you would earn a total of  864.00  from holding The9 Ltd ADR or generate 96.97% return on investment over 90 days.

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

The9 Ltd ADR  vs.  Taiwan Semiconductor Manufactu

The9 Ltd ADR

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The9 Ltd ADR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, The9 showed solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with The9 and Taiwan Semiconductor

The main advantage of trading using opposite The9 and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The9 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 The9 Ltd ADR 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.