Correlation Between Taiwan Semiconductor and PETRONAS Gas

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

Diversification Opportunities for Taiwan Semiconductor and PETRONAS Gas

-0.5

Correlation Coefficient

Taiwan Semiconductor  PETRONAS Gas

Very good diversification

The 3 months correlation between Taiwan and PETRONAS is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and PETRONAS Gas Berhad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETRONAS Gas Berhad 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 PETRONAS Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETRONAS Gas Berhad has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and PETRONAS Gas go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and PETRONAS Gas

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 3.72 times more return on investment than PETRONAS Gas. However, Taiwan Semiconductor is 3.72 times more volatile than PETRONAS Gas Berhad. It trades about 0.06 of its potential returns per unit of risk. PETRONAS Gas Berhad is currently generating about -0.25 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	Very Weak
Accuracy	95.0%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  PETRONAS Gas Berhad

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.

PETRONAS Gas Berhad

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PETRONAS Gas Berhad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, PETRONAS Gas is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Taiwan Semiconductor and PETRONAS Gas

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

The idea behind Taiwan Semiconductor Manufacturing and PETRONAS Gas Berhad 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.