Correlation Between Taiwan Semiconductor and Coupang

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

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

Diversification Opportunities for Taiwan Semiconductor and Coupang

0.58

Correlation Coefficient

Taiwan Semiconductor  Coupang

Very weak diversification

The 3 months correlation between Taiwan and Coupang is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Coupang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coupang and Taiwan 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 Taiwan Semiconductor Manufacturing are associated (or correlated) with Coupang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coupang has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Coupang go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Coupang

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.11 times more return on investment than Coupang. However, Taiwan Semiconductor is 1.11 times more volatile than Coupang. It trades about 0.15 of its potential returns per unit of risk. Coupang is currently generating about 0.04 per unit of risk. If you would invest  14,990  in Taiwan Semiconductor Manufacturing on September 14, 2024 and sell it today you would earn a total of  3,548  from holding Taiwan Semiconductor Manufacturing or generate 23.67% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Coupang

Taiwan Semiconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Coupang

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coupang are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Coupang is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Taiwan Semiconductor and Coupang

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

The idea behind Taiwan Semiconductor Manufacturing and Coupang 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.