Correlation Between Tower Semiconductor and NEXTDC

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

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

Diversification Opportunities for Tower Semiconductor and NEXTDC

-0.48

Correlation Coefficient

Tower Semiconductor  NEXTDC

Very good diversification

The 3 months correlation between Tower and NEXTDC is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Tower Semiconductor and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD and Tower 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 Tower Semiconductor are associated (or correlated) with NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Tower Semiconductor i.e., Tower Semiconductor and NEXTDC go up and down completely randomly.

Pair Corralation between Tower Semiconductor and NEXTDC

Assuming the 90 days horizon Tower Semiconductor is expected to generate 1.48 times more return on investment than NEXTDC. However, Tower Semiconductor is 1.48 times more volatile than NEXTDC LTD. It trades about 0.13 of its potential returns per unit of risk. NEXTDC LTD is currently generating about -0.13 per unit of risk. If you would invest  3,981  in Tower Semiconductor on September 18, 2024 and sell it today you would earn a total of  739.00  from holding Tower Semiconductor or generate 18.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Tower Semiconductor  vs.  NEXTDC LTD

Tower Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Tower Semiconductor and NEXTDC

The main advantage of trading using opposite Tower Semiconductor and NEXTDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tower Semiconductor position performs unexpectedly, NEXTDC 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 NEXTDC will offset losses from the drop in NEXTDC's long position.

The idea behind Tower Semiconductor and NEXTDC LTD 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..