Correlation Between Taiwan Semiconductor and Unilever PLC

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

Diversification Opportunities for Taiwan Semiconductor and Unilever PLC

0.48

Correlation Coefficient

Taiwan Semiconductor  Unilever PLC

Very weak diversification

The 3 months correlation between Taiwan and Unilever is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC 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 Unilever PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever PLC has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Unilever PLC go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Unilever PLC

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 2.02 times more return on investment than Unilever PLC. However, Taiwan Semiconductor is 2.02 times more volatile than Unilever PLC. It trades about 0.08 of its potential returns per unit of risk. Unilever PLC is currently generating about 0.05 per unit of risk. If you would invest  162,974  in Taiwan Semiconductor Manufacturing on December 2, 2024 and sell it today you would earn a total of  205,846  from holding Taiwan Semiconductor Manufacturing or generate 126.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Unilever PLC

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 fairly strong basic indicators, Taiwan Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Unilever PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unilever PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Unilever PLC is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Taiwan Semiconductor and Unilever PLC

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

The idea behind Taiwan Semiconductor Manufacturing and Unilever PLC 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.