Correlation Between Volkswagen and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both Volkswagen and Taiwan Semiconductor 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 Volkswagen and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Volkswagen AG and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Volkswagen and Taiwan Semiconductor 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 Volkswagen with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Taiwan Semiconductor.

Diversification Opportunities for Volkswagen and Taiwan Semiconductor

-0.45

Correlation Coefficient

Volkswagen  Taiwan Semiconductor

Very good diversification

The 3 months correlation between Volkswagen and Taiwan is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and Volkswagen 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 Volkswagen AG are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Volkswagen i.e., Volkswagen and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Volkswagen and Taiwan Semiconductor

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.68 times more return on investment than Taiwan Semiconductor. However, Volkswagen AG is 1.46 times less risky than Taiwan Semiconductor. It trades about 0.2 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.05 per unit of risk. If you would invest  8,515  in Volkswagen AG on October 5, 2024 and sell it today you would earn a total of  460.00  from holding Volkswagen AG or generate 5.4% return on investment over 90 days.

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

Volkswagen AG  vs.  Taiwan Semiconductor Manufactu

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Taiwan Semiconductor

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain technical and fundamental indicators, Taiwan Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Taiwan Semiconductor

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

The idea behind Volkswagen AG and Taiwan Semiconductor Manufacturing 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.