Correlation Between Taiwan Semiconductor and McDonalds

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

Diversification Opportunities for Taiwan Semiconductor and McDonalds

-0.5

Correlation Coefficient

Taiwan Semiconductor  McDonalds

Very good diversification

The 3 months correlation between Taiwan and McDonalds is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds 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 McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and McDonalds go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and McDonalds

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.75 times more return on investment than McDonalds. However, Taiwan Semiconductor is 1.75 times more volatile than McDonalds. It trades about 0.1 of its potential returns per unit of risk. McDonalds is currently generating about 0.06 per unit of risk. If you would invest  155,928  in Taiwan Semiconductor Manufacturing on December 5, 2024 and sell it today you would earn a total of  217,087  from holding Taiwan Semiconductor Manufacturing or generate 139.22% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  McDonalds

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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

McDonalds

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Taiwan Semiconductor and McDonalds

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

The idea behind Taiwan Semiconductor Manufacturing and McDonalds 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.