Correlation Between Chunghwa Telecom and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and Formosa Plastics 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 Chunghwa Telecom and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chunghwa Telecom Co and Formosa Plastics Corp, you can compare the effects of market volatilities on Chunghwa Telecom and Formosa Plastics 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 Chunghwa Telecom with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and Formosa Plastics.
Diversification Opportunities for Chunghwa Telecom and Formosa Plastics
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Chunghwa and Formosa is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Formosa Plastics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Plastics Corp and Chunghwa Telecom 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 Chunghwa Telecom Co are associated (or correlated) with Formosa Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Plastics Corp has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Formosa Plastics go up and down completely randomly.
Pair Corralation between Chunghwa Telecom and Formosa Plastics
Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.52 times more return on investment than Formosa Plastics. However, Chunghwa Telecom Co is 1.91 times less risky than Formosa Plastics. It trades about 0.03 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about -0.11 per unit of risk. If you would invest 11,200 in Chunghwa Telecom Co on August 30, 2024 and sell it today you would earn a total of 1,150 from holding Chunghwa Telecom Co or generate 10.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Telecom Co vs. Formosa Plastics Corp
Performance |
| Timeline |
| Chunghwa Telecom |
| Formosa Plastics Corp |
Chunghwa Telecom and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Telecom and Formosa Plastics
The main advantage of trading using opposite Chunghwa Telecom and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, Formosa Plastics 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 Formosa Plastics will offset losses from the drop in Formosa Plastics' long position.| Chunghwa Telecom vs. Taiwan Mobile Co | Chunghwa Telecom vs. China Steel Corp | Chunghwa Telecom vs. Formosa Plastics Corp | Chunghwa Telecom vs. Cathay Financial Holding |
| Formosa Plastics vs. Nan Ya Plastics | Formosa Plastics vs. Formosa Chemicals Fibre | Formosa Plastics vs. China Steel Corp | Formosa Plastics vs. Formosa Petrochemical Corp |
Check out your portfolio center.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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