Correlation Between Taiwan Semiconductor and Tower Semiconductor

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

Diversification Opportunities for Taiwan Semiconductor and Tower Semiconductor

0.81

Correlation Coefficient

Taiwan Semiconductor  Tower Semiconductor

Very poor diversification

The 3 months correlation between Taiwan and Tower is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Tower Semiconductor go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Tower Semiconductor

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 0.9 times more return on investment than Tower Semiconductor. However, Taiwan Semiconductor Manufacturing is 1.11 times less risky than Tower Semiconductor. It trades about 0.07 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.01 per unit of risk. If you would invest  9,207  in Taiwan Semiconductor Manufacturing on March 23, 2025 and sell it today you would earn a total of  8,993  from holding Taiwan Semiconductor Manufacturing or generate 97.68% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Tower Semiconductor

Taiwan Semiconductor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Taiwan Semiconductor may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Tower Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tower Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tower Semiconductor is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Taiwan Semiconductor and Tower Semiconductor

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

The idea behind Taiwan Semiconductor Manufacturing and Tower Semiconductor 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.