Correlation Between Taiwan Semiconductor and Intel

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

Diversification Opportunities for Taiwan Semiconductor and Intel

-0.23

Correlation Coefficient

Taiwan Semiconductor  Intel

Very good diversification

The 3 months correlation between Taiwan and Intel is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Intel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intel 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 Intel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intel has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Intel go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Intel

Considering the 90-day investment horizon Taiwan Semiconductor Manufacturing is expected to generate 0.83 times more return on investment than Intel. However, Taiwan Semiconductor Manufacturing is 1.2 times less risky than Intel. It trades about 0.17 of its potential returns per unit of risk. Intel is currently generating about -0.06 per unit of risk. If you would invest  9,100  in Taiwan Semiconductor Manufacturing on February 1, 2024 and sell it today you would earn a total of  4,634  from holding Taiwan Semiconductor Manufacturing or generate 50.92% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Intel

Taiwan Semiconductor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Taiwan Semiconductor displayed solid returns over the last few months and may actually be approaching a breakup point.

Intel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Taiwan Semiconductor and Intel

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

The idea behind Taiwan Semiconductor Manufacturing and Intel 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.