Correlation Between Taiwan Semiconductor and NeoMagic

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

Diversification Opportunities for Taiwan Semiconductor and NeoMagic

-0.33

Correlation Coefficient

Taiwan Semiconductor  NeoMagic

Very good diversification

The 3 months correlation between Taiwan and NeoMagic is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and NeoMagic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NeoMagic 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 NeoMagic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NeoMagic has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and NeoMagic go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and NeoMagic

Considering the 90-day investment horizon Taiwan Semiconductor is expected to generate 2.37 times less return on investment than NeoMagic. But when comparing it to its historical volatility, Taiwan Semiconductor Manufacturing is 4.7 times less risky than NeoMagic. It trades about 0.1 of its potential returns per unit of risk. NeoMagic is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.73  in NeoMagic on October 5, 2024 and sell it today you would lose (0.01) from holding NeoMagic or give up 1.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	19.78%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  NeoMagic

Taiwan Semiconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NeoMagic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NeoMagic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, NeoMagic is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Taiwan Semiconductor and NeoMagic

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

The idea behind Taiwan Semiconductor Manufacturing and NeoMagic 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.