Correlation Between SBM Offshore and Taiwan Semiconductor

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

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

Diversification Opportunities for SBM Offshore and Taiwan Semiconductor

-0.47

Correlation Coefficient

SBM Offshore  Taiwan Semiconductor

Very good diversification

The 3 months correlation between SBM and Taiwan is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and SBM Offshore 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 SBM Offshore NV 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 SBM Offshore i.e., SBM Offshore and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between SBM Offshore and Taiwan Semiconductor

Assuming the 90 days horizon SBM Offshore NV is expected to generate 1.26 times more return on investment than Taiwan Semiconductor. However, SBM Offshore is 1.26 times more volatile than Taiwan Semiconductor Manufacturing. It trades about 0.1 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.02 per unit of risk. If you would invest  1,880  in SBM Offshore NV on December 2, 2024 and sell it today you would earn a total of  395.00  from holding SBM Offshore NV or generate 21.01% return on investment over 90 days.

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

SBM Offshore NV  vs.  Taiwan Semiconductor Manufactu

SBM Offshore NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SBM Offshore showed solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Taiwan Semiconductor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SBM Offshore and Taiwan Semiconductor

The main advantage of trading using opposite SBM Offshore and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore 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 SBM Offshore NV 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.