Correlation Between Taiwan Semiconductor and Mars Acquisition

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

Diversification Opportunities for Taiwan Semiconductor and Mars Acquisition

0.08

Correlation Coefficient

Taiwan Semiconductor  Mars Acquisition

Significant diversification

The 3 months correlation between Taiwan and Mars is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Mars Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mars Acquisition Corp 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 Mars Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mars Acquisition Corp has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Mars Acquisition go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Mars Acquisition

Assuming the 90 days horizon Taiwan Semiconductor Manufacturing is expected to generate 1.85 times more return on investment than Mars Acquisition. However, Taiwan Semiconductor is 1.85 times more volatile than Mars Acquisition Corp. It trades about 0.22 of its potential returns per unit of risk. Mars Acquisition Corp is currently generating about 0.13 per unit of risk. If you would invest  1,324  in Taiwan Semiconductor Manufacturing on October 10, 2024 and sell it today you would earn a total of  400.00  from holding Taiwan Semiconductor Manufacturing or generate 30.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	65.0%
Values	Daily Returns

Taiwan Semiconductor Manufactu  vs.  Mars Acquisition Corp

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.

Mars Acquisition Corp

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Taiwan Semiconductor and Mars Acquisition

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

The idea behind Taiwan Semiconductor Manufacturing and Mars Acquisition Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.