Correlation Between Taiwan Semiconductor and Ultra Chip

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

Diversification Opportunities for Taiwan Semiconductor and Ultra Chip

-0.83

Correlation Coefficient

Taiwan Semiconductor  Ultra Chip

Pay attention - limited upside

The 3 months correlation between Taiwan and Ultra is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Ultra Chip in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Chip 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 Ultra Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Chip has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Ultra Chip go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Ultra Chip

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.01 times more return on investment than Ultra Chip. However, Taiwan Semiconductor is 1.01 times more volatile than Ultra Chip. It trades about 0.17 of its potential returns per unit of risk. Ultra Chip is currently generating about -0.02 per unit of risk. If you would invest  55,600  in Taiwan Semiconductor Manufacturing on February 6, 2024 and sell it today you would earn a total of  22,400  from holding Taiwan Semiconductor Manufacturing or generate 40.29% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Ultra Chip

Taiwan Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

Ultra Chip

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Chip are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Ultra Chip is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Semiconductor and Ultra Chip

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

The idea behind Taiwan Semiconductor Manufacturing and Ultra Chip 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.