Correlation Between Taiwan Semiconductor and Masco

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

Diversification Opportunities for Taiwan Semiconductor and Masco

-0.77

Correlation Coefficient

Taiwan Semiconductor  Masco

Pay attention - limited upside

The 3 months correlation between Taiwan and Masco is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco 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 Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Masco go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Masco

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to under-perform the Masco. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Semiconductor Manufacturing is 1.63 times less risky than Masco. The stock trades about -0.08 of its potential returns per unit of risk. The Masco is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  114,362  in Masco on December 21, 2024 and sell it today you would earn a total of  41,548  from holding Masco or generate 36.33% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Masco

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 fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Masco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Masco showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and Masco

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

The idea behind Taiwan Semiconductor Manufacturing and Masco 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.