Correlation Between Taiwan Semiconductor and Sanofi

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

Diversification Opportunities for Taiwan Semiconductor and Sanofi

-0.65

Correlation Coefficient

Taiwan Semiconductor  Sanofi

Excellent diversification

The 3 months correlation between Taiwan and Sanofi is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Sanofi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanofi 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 Sanofi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanofi has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Sanofi go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Sanofi

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.09 times more return on investment than Sanofi. However, Taiwan Semiconductor is 1.09 times more volatile than Sanofi. It trades about 0.16 of its potential returns per unit of risk. Sanofi is currently generating about 0.08 per unit of risk. If you would invest  403,393  in Taiwan Semiconductor Manufacturing on October 8, 2024 and sell it today you would earn a total of  26,613  from holding Taiwan Semiconductor Manufacturing or generate 6.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	88.89%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Sanofi

Taiwan Semiconductor

Risk-Adjusted Performance

10 of 100

OK

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

Sanofi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanofi 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.

Pair Trading with Taiwan Semiconductor and Sanofi

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

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