Correlation Between Taiwan Semiconductor and X-FAB Silicon

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

Diversification Opportunities for Taiwan Semiconductor and X-FAB Silicon

0.39

Correlation Coefficient

Taiwan Semiconductor  X-FAB Silicon

Weak diversification

The 3 months correlation between Taiwan and X-FAB is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon 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 X-FAB Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and X-FAB Silicon go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and X-FAB Silicon

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to under-perform the X-FAB Silicon. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Semiconductor Manufacturing is 1.04 times less risky than X-FAB Silicon. The stock trades about -0.07 of its potential returns per unit of risk. The X FAB Silicon Foundries is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  509.00  in X FAB Silicon Foundries on December 21, 2024 and sell it today you would lose (33.00) from holding X FAB Silicon Foundries or give up 6.48% of portfolio value over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  X FAB Silicon Foundries

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

X FAB Silicon

Risk-Adjusted Performance

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, X-FAB Silicon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Taiwan Semiconductor and X-FAB Silicon

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

The idea behind Taiwan Semiconductor Manufacturing and X FAB Silicon Foundries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.