Correlation Between Taiwan Semiconductor and Anglo American

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

Diversification Opportunities for Taiwan Semiconductor and Anglo American

0.67

Correlation Coefficient

Taiwan Semiconductor  Anglo American

Poor diversification

The 3 months correlation between Taiwan and Anglo is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Anglo American plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American plc 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American plc has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Anglo American go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Anglo American

Assuming the 90 days trading horizon Taiwan Semiconductor is expected to generate 2.49 times less return on investment than Anglo American. In addition to that, Taiwan Semiconductor is 1.31 times more volatile than Anglo American plc. It trades about 0.11 of its total potential returns per unit of risk. Anglo American plc is currently generating about 0.37 per unit of volatility. If you would invest  2,700  in Anglo American plc on September 14, 2024 and sell it today you would earn a total of  383.00  from holding Anglo American plc or generate 14.19% 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.  Anglo American plc

Taiwan Semiconductor

Risk-Adjusted Performance

11 of 100

OK

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.

Anglo American plc

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Taiwan Semiconductor and Anglo American

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

The idea behind Taiwan Semiconductor Manufacturing and Anglo American plc 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.