Correlation Between Taiwan Semiconductor and MaxLinear

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

Diversification Opportunities for Taiwan Semiconductor and MaxLinear

0.88

Correlation Coefficient

Taiwan Semiconductor  MaxLinear

Very poor diversification

The 3 months correlation between Taiwan and MaxLinear is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and MaxLinear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MaxLinear 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 MaxLinear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MaxLinear has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and MaxLinear go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and MaxLinear

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.55 times more return on investment than MaxLinear. However, Taiwan Semiconductor Manufacturing is 1.81 times less risky than MaxLinear. It trades about -0.09 of its potential returns per unit of risk. MaxLinear is currently generating about -0.11 per unit of risk. If you would invest  19,902  in Taiwan Semiconductor Manufacturing on December 23, 2024 and sell it today you would lose (3,542) from holding Taiwan Semiconductor Manufacturing or give up 17.8% of portfolio value over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  MaxLinear

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MaxLinear

Risk-Adjusted Performance

Very Weak

Over the last 90 days MaxLinear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Taiwan Semiconductor and MaxLinear

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

The idea behind Taiwan Semiconductor Manufacturing and MaxLinear 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.