Correlation Between Taiwan Weighted and Basso Industry

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

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

Diversification Opportunities for Taiwan Weighted and Basso Industry

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Correlation Coefficient

Taiwan Weighted  Basso Industry

Pay attention - limited upside

The 3 months correlation between Taiwan and Basso is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Basso Industry Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basso Industry Corp 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 Basso Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basso Industry Corp has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Basso Industry go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Basso Industry

Assuming the 90 days trading horizon Taiwan Weighted is expected to under-perform the Basso Industry. In addition to that, Taiwan Weighted is 1.34 times more volatile than Basso Industry Corp. It trades about -0.1 of its total potential returns per unit of risk. Basso Industry Corp is currently generating about -0.05 per unit of volatility. If you would invest  4,215  in Basso Industry Corp on December 30, 2024 and sell it today you would lose (115.00) from holding Basso Industry Corp or give up 2.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Taiwan Weighted  vs.  Basso Industry Corp

Pair Trading with Taiwan Weighted and Basso Industry

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

The idea behind Taiwan Weighted and Basso Industry Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.