Correlation Between Taiwan Semiconductor and Teradyne

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

Diversification Opportunities for Taiwan Semiconductor and Teradyne

0.82

Correlation Coefficient

Taiwan Semiconductor  Teradyne

Very poor diversification

The 3 months correlation between Taiwan and Teradyne is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Teradyne go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Teradyne

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 0.92 times more return on investment than Teradyne. However, Taiwan Semiconductor Manufacturing is 1.08 times less risky than Teradyne. It trades about -0.04 of its potential returns per unit of risk. Teradyne is currently generating about -0.17 per unit of risk. If you would invest  20,227  in Taiwan Semiconductor Manufacturing on December 26, 2024 and sell it today you would lose (2,137) from holding Taiwan Semiconductor Manufacturing or give up 10.57% of portfolio value over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Teradyne

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

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

Teradyne

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 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 Teradyne

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

The idea behind Taiwan Semiconductor Manufacturing and Teradyne 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.