Correlation Between Taiwan Semiconductor and MetLife

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

Diversification Opportunities for Taiwan Semiconductor and MetLife

0.84

Correlation Coefficient

Taiwan Semiconductor  MetLife

Very poor diversification

The 3 months correlation between Taiwan and MetLife is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and MetLife go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and MetLife

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 2.08 times more return on investment than MetLife. However, Taiwan Semiconductor is 2.08 times more volatile than MetLife. It trades about 0.29 of its potential returns per unit of risk. MetLife is currently generating about -0.05 per unit of risk. If you would invest  13,480  in Taiwan Semiconductor Manufacturing on September 27, 2024 and sell it today you would earn a total of  2,420  from holding Taiwan Semiconductor Manufacturing or generate 17.95% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  MetLife

Taiwan Semiconductor

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Taiwan Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

MetLife

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetLife sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and MetLife

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

The idea behind Taiwan Semiconductor Manufacturing and MetLife 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.