Correlation Between Taiwan Semiconductor and EMCORE

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

Diversification Opportunities for Taiwan Semiconductor and EMCORE

0.5

Correlation Coefficient

Taiwan Semiconductor  EMCORE

Very weak diversification

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

Pair Corralation between Taiwan Semiconductor and EMCORE

Assuming the 90 days horizon Taiwan Semiconductor Manufacturing is expected to generate 0.47 times more return on investment than EMCORE. However, Taiwan Semiconductor Manufacturing is 2.13 times less risky than EMCORE. It trades about 0.14 of its potential returns per unit of risk. EMCORE is currently generating about 0.01 per unit of risk. If you would invest  493.00  in Taiwan Semiconductor Manufacturing on October 22, 2024 and sell it today you would earn a total of  1,231  from holding Taiwan Semiconductor Manufacturing or generate 249.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  EMCORE

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. Despite nearly fragile basic indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

EMCORE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Semiconductor and EMCORE

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

The idea behind Taiwan Semiconductor Manufacturing and EMCORE 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 Global Correlations module to find global opportunities by holding instruments from different markets.