Correlation Between Taiwan Semiconductor and Exxon Mobil

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

Diversification Opportunities for Taiwan Semiconductor and Exxon Mobil

0.73

Correlation Coefficient

Taiwan Semiconductor  Exxon Mobil

Poor diversification

The 3 months correlation between Taiwan and Exxon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Semiconductor Manufactu and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Taiwan Semiconductor i.e., Taiwan Semiconductor and Exxon Mobil go up and down completely randomly.

Pair Corralation between Taiwan Semiconductor and Exxon Mobil

Assuming the 90 days trading horizon Taiwan Semiconductor Manufacturing is expected to generate 1.95 times more return on investment than Exxon Mobil. However, Taiwan Semiconductor is 1.95 times more volatile than Exxon Mobil. It trades about 0.18 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.09 per unit of risk. If you would invest  11,422  in Taiwan Semiconductor Manufacturing on September 17, 2024 and sell it today you would earn a total of  3,786  from holding Taiwan Semiconductor Manufacturing or generate 33.15% return on investment over 90 days.

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

Taiwan Semiconductor Manufactu  vs.  Exxon Mobil

Taiwan Semiconductor

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Taiwan Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Exxon Mobil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Exxon Mobil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Semiconductor and Exxon Mobil

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

The idea behind Taiwan Semiconductor Manufacturing and Exxon Mobil 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.