Correlation Between Taiwan Semiconductor and GrafTech International

Can any of the company-specific risk be diversified away by investing in both Taiwan Semiconductor and GrafTech International 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 GrafTech International 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 GrafTech International, you can compare the effects of market volatilities on Taiwan Semiconductor and GrafTech International 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 GrafTech International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Semiconductor and GrafTech International.

Diversification Opportunities for Taiwan Semiconductor and GrafTech International

0.7

Correlation Coefficient

Taiwan Semiconductor  GrafTech International

Poor diversification

The 3 months correlation between Taiwan and GrafTech is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and GrafTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrafTech International 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 GrafTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrafTech International has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and GrafTech International go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and GrafTech International

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.39 times more return on investment than GrafTech International. However, Taiwan Semiconductor Manufacturing is 2.59 times less risky than GrafTech International. It trades about 0.08 of its potential returns per unit of risk. GrafTech International is currently generating about -0.16 per unit of risk. If you would invest  18,180  in Taiwan Semiconductor Manufacturing on September 23, 2024 and sell it today you would earn a total of  580.00  from holding Taiwan Semiconductor Manufacturing or generate 3.19% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  GrafTech International

Taiwan Semiconductor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

GrafTech International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GrafTech International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GrafTech International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and GrafTech International

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

The idea behind Taiwan Semiconductor Manufacturing and GrafTech International 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.