Correlation Between Taiwan Weighted and Xin Chio

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

By analyzing existing cross correlation between Taiwan Weighted and Xin Chio Global, you can compare the effects of market volatilities on Taiwan Weighted and Xin Chio 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 Weighted with a short position of Xin Chio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Weighted and Xin Chio.

Diversification Opportunities for Taiwan Weighted and Xin Chio

-0.45

Correlation Coefficient

Taiwan Weighted  Xin Chio

Very good diversification

The 3 months correlation between Taiwan and Xin is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Xin Chio Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xin Chio Global and Taiwan Weighted 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 Weighted are associated (or correlated) with Xin Chio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xin Chio Global has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Xin Chio go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Xin Chio

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 1.26 times more return on investment than Xin Chio. However, Taiwan Weighted is 1.26 times more volatile than Xin Chio Global. It trades about 0.08 of its potential returns per unit of risk. Xin Chio Global is currently generating about -0.14 per unit of risk. If you would invest  2,284,880  in Taiwan Weighted on September 20, 2024 and sell it today you would earn a total of  31,987  from holding Taiwan Weighted or generate 1.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Taiwan Weighted  vs.  Xin Chio Global

Pair Trading with Taiwan Weighted and Xin Chio

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

The idea behind Taiwan Weighted and Xin Chio Global 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.