Analysis About The Correlation Of The Portfolio Risk

In the field of finance, a large number of financial instruments hold the un-certain profits, i.e the risks. Investors use the portfolios to reduce the risk becauseof the dependence between the di?erent financial instruments. The Capital AssetPricing Model(CAPM) and the Arbitrage Pricing Theory(APT) use correlationas a measure of dependence between di?erent financial instruments and employan elegant theory, which is essentially founded on an assumption of multivariatenormally distributed returns, in order to arrive at an optimal portfolio selection.During the increasing complexity of financial capitals, the hypothesis of the mul-tivariate normal distribution is untenable. Sklar provide copula to describe thedependence better than the correlation. Copula gradually becomes a useful toolfor risk analysis because of its special character that it divides the joint distributioninto marginal distribution and dependence structure.Nowadays, the simple normal copula applies in many financial fields such ascapital pricing and risk management. This paper provides a method to choosethe better one between normal copula and t-copula to describe the dependence ofthe spot exchange rates of three Asia countries. It can be included that normalcopula is fit for the quantile of 90%,95% and t-copula is fit for the quantile of 99%.Moreover, this method can suit more financial data such as stock ,equity indexand so on.