Correlation Between Taiwan Semiconductor and Procyon

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

Diversification Opportunities for Taiwan Semiconductor and Procyon

-0.23

Correlation Coefficient

Taiwan Semiconductor  Procyon

Very good diversification

The 3 months correlation between Taiwan and Procyon is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Procyon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procyon 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 Procyon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procyon has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Procyon go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Procyon

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 0.39 times more return on investment than Procyon. However, Taiwan Semiconductor Manufacturing is 2.56 times less risky than Procyon. It trades about 0.06 of its potential returns per unit of risk. Procyon is currently generating about -0.01 per unit of risk. If you would invest  20,365  in Taiwan Semiconductor Manufacturing on October 6, 2024 and sell it today you would earn a total of  496.00  from holding Taiwan Semiconductor Manufacturing or generate 2.44% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Procyon

Taiwan Semiconductor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 7 (%) 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.

Procyon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procyon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Taiwan Semiconductor and Procyon

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

The idea behind Taiwan Semiconductor Manufacturing and Procyon 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 Global Correlations module to find global opportunities by holding instruments from different markets.