Correlation Between Taiwan Semiconductor and Renesas Electronics

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

Diversification Opportunities for Taiwan Semiconductor and Renesas Electronics

-0.4

Correlation Coefficient

Taiwan Semiconductor  Renesas Electronics

Very good diversification

The 3 months correlation between Taiwan and Renesas is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Renesas Electronics go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Renesas Electronics

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to under-perform the Renesas Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Semiconductor Manufacturing is 1.1 times less risky than Renesas Electronics. The stock trades about -0.09 of its potential returns per unit of risk. The Renesas Electronics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,271  in Renesas Electronics on December 29, 2024 and sell it today you would earn a total of  131.00  from holding Renesas Electronics or generate 10.31% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Renesas Electronics

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 uncertain 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.

Renesas Electronics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Renesas Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Renesas Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Renesas Electronics

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

The idea behind Taiwan Semiconductor Manufacturing and Renesas Electronics 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.