Correlation Between Taiwan Semiconductor and Canadian Solar

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

Diversification Opportunities for Taiwan Semiconductor and Canadian Solar

-0.54

Correlation Coefficient

Taiwan Semiconductor  Canadian Solar

Excellent diversification

The 3 months correlation between Taiwan and Canadian is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Canadian Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Solar 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 Canadian Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Solar has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Canadian Solar go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Canadian Solar

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 0.42 times more return on investment than Canadian Solar. However, Taiwan Semiconductor Manufacturing is 2.37 times less risky than Canadian Solar. It trades about 0.11 of its potential returns per unit of risk. Canadian Solar is currently generating about -0.08 per unit of risk. If you would invest  17,312  in Taiwan Semiconductor Manufacturing on September 30, 2024 and sell it today you would earn a total of  2,851  from holding Taiwan Semiconductor Manufacturing or generate 16.47% 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.  Canadian Solar

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Taiwan Semiconductor and Canadian Solar

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

The idea behind Taiwan Semiconductor Manufacturing and Canadian Solar 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.