Correlation Between Taiwan Semiconductor and Host Hotels

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

Diversification Opportunities for Taiwan Semiconductor and Host Hotels

0.63

Correlation Coefficient

Taiwan Semiconductor  Host Hotels

Poor diversification

The 3 months correlation between Taiwan and Host is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Host Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Host Hotels Resorts 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 Host Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Host Hotels Resorts has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Host Hotels go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Host Hotels

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.47 times more return on investment than Host Hotels. However, Taiwan Semiconductor is 1.47 times more volatile than Host Hotels Resorts. It trades about 0.12 of its potential returns per unit of risk. Host Hotels Resorts is currently generating about 0.04 per unit of risk. If you would invest  8,427  in Taiwan Semiconductor Manufacturing on October 5, 2024 and sell it today you would earn a total of  11,033  from holding Taiwan Semiconductor Manufacturing or generate 130.92% 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.  Host Hotels Resorts

Taiwan Semiconductor

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Host Hotels Resorts

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Host Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Taiwan Semiconductor and Host Hotels

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

The idea behind Taiwan Semiconductor Manufacturing and Host Hotels Resorts 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.