Correlation Between Taiwan Weighted and Fubon NASDAQ

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

By analyzing existing cross correlation between Taiwan Weighted and Fubon NASDAQ 100 Index, you can compare the effects of market volatilities on Taiwan Weighted and Fubon NASDAQ 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 Fubon NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Weighted and Fubon NASDAQ.

Diversification Opportunities for Taiwan Weighted and Fubon NASDAQ

0.58

Correlation Coefficient

Taiwan Weighted  Fubon NASDAQ

Very weak diversification

The 3 months correlation between Taiwan and Fubon is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Fubon NASDAQ 100 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon NASDAQ 100 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 Fubon NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon NASDAQ 100 has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Fubon NASDAQ go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Fubon NASDAQ

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 1.97 times less return on investment than Fubon NASDAQ. In addition to that, Taiwan Weighted is 1.05 times more volatile than Fubon NASDAQ 100 Index. It trades about 0.11 of its total potential returns per unit of risk. Fubon NASDAQ 100 Index is currently generating about 0.22 per unit of volatility. If you would invest  7,995  in Fubon NASDAQ 100 Index on September 17, 2024 and sell it today you would earn a total of  1,085  from holding Fubon NASDAQ 100 Index or generate 13.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Taiwan Weighted  vs.  Fubon NASDAQ 100 Index

Pair Trading with Taiwan Weighted and Fubon NASDAQ

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

The idea behind Taiwan Weighted and Fubon NASDAQ 100 Index 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..