Correlation Between Taiwan Semiconductor and Southern California

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

Diversification Opportunities for Taiwan Semiconductor and Southern California

-0.63

Correlation Coefficient

Taiwan Semiconductor  Southern California

Excellent diversification

The 3 months correlation between Taiwan and Southern is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Southern California Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California Gas 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 Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California Gas has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Southern California go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Southern California

If you would invest  20,306  in Taiwan Semiconductor Manufacturing on October 26, 2024 and sell it today you would earn a total of  1,951  from holding Taiwan Semiconductor Manufacturing or generate 9.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	5.26%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Southern California Gas

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.

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Taiwan Semiconductor and Southern California

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

The idea behind Taiwan Semiconductor Manufacturing and Southern California Gas 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.