Correlation Between Scope Metals and Tower Semiconductor

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

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

Diversification Opportunities for Scope Metals and Tower Semiconductor

0.84

Correlation Coefficient

Scope Metals  Tower Semiconductor

Very poor diversification

The 3 months correlation between Scope and Tower is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Scope Metals Group and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor and Scope Metals 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 Scope Metals Group 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 Scope Metals i.e., Scope Metals and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Scope Metals and Tower Semiconductor

Assuming the 90 days trading horizon Scope Metals Group is expected to generate 0.85 times more return on investment than Tower Semiconductor. However, Scope Metals Group is 1.18 times less risky than Tower Semiconductor. It trades about 0.27 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.11 per unit of risk. If you would invest  1,165,000  in Scope Metals Group on October 23, 2024 and sell it today you would earn a total of  369,000  from holding Scope Metals Group or generate 31.67% return on investment over 90 days.

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

Scope Metals Group  vs.  Tower Semiconductor

Scope Metals Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Scope Metals Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Scope Metals sustained solid returns over the last few months and may actually be approaching a breakup point.

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. Despite somewhat weak basic indicators, Tower Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scope Metals and Tower Semiconductor

The main advantage of trading using opposite Scope Metals and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scope Metals 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 Scope Metals Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.