Correlation Between Tower Semiconductor and NetEase

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

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

Diversification Opportunities for Tower Semiconductor and NetEase

0.45

Correlation Coefficient

Tower Semiconductor  NetEase

Very weak diversification

The 3 months correlation between Tower and NetEase is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tower Semiconductor and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Tower Semiconductor i.e., Tower Semiconductor and NetEase go up and down completely randomly.

Pair Corralation between Tower Semiconductor and NetEase

Given the investment horizon of 90 days Tower Semiconductor is expected to generate 1.25 times more return on investment than NetEase. However, Tower Semiconductor is 1.25 times more volatile than NetEase. It trades about 0.21 of its potential returns per unit of risk. NetEase is currently generating about -0.52 per unit of risk. If you would invest  4,860  in Tower Semiconductor on October 9, 2024 and sell it today you would earn a total of  330.00  from holding Tower Semiconductor or generate 6.79% return on investment over 90 days.

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

Tower Semiconductor  vs.  NetEase

Tower Semiconductor

Risk-Adjusted Performance

7 of 100

OK

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

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NetEase is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tower Semiconductor and NetEase

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

The idea behind Tower Semiconductor and NetEase 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.