Correlation Between Taiwan Weighted and EirGenix

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

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

Diversification Opportunities for Taiwan Weighted and EirGenix

0.21

Correlation Coefficient

Taiwan Weighted  EirGenix

Modest diversification

The 3 months correlation between Taiwan and EirGenix is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and EirGenix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EirGenix 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 EirGenix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EirGenix has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and EirGenix go up and down completely randomly.

Pair Corralation between Taiwan Weighted and EirGenix

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 0.4 times more return on investment than EirGenix. However, Taiwan Weighted is 2.52 times less risky than EirGenix. It trades about 0.09 of its potential returns per unit of risk. EirGenix is currently generating about -0.08 per unit of risk. If you would invest  2,185,008  in Taiwan Weighted on September 14, 2024 and sell it today you would earn a total of  117,040  from holding Taiwan Weighted or generate 5.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Taiwan Weighted  vs.  EirGenix

Pair Trading with Taiwan Weighted and EirGenix

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

The idea behind Taiwan Weighted and EirGenix 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 Correlations module to find global opportunities by holding instruments from different markets.