Correlation Between Chunghwa Telecom and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and Cathay Financial 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 Cathay Financial 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 Cathay Financial Holding, you can compare the effects of market volatilities on Chunghwa Telecom and Cathay Financial 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 Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and Cathay Financial.
Diversification Opportunities for Chunghwa Telecom and Cathay Financial
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Chunghwa and Cathay is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding 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 Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Cathay Financial go up and down completely randomly.
Pair Corralation between Chunghwa Telecom and Cathay Financial
Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.29 times more return on investment than Cathay Financial. However, Chunghwa Telecom Co is 3.42 times less risky than Cathay Financial. It trades about -0.09 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about -0.15 per unit of risk. If you would invest 12,450 in Chunghwa Telecom Co on October 24, 2024 and sell it today you would lose (100.00) from holding Chunghwa Telecom Co or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Telecom Co vs. Cathay Financial Holding
Performance |
| Timeline |
| Chunghwa Telecom |
| Cathay Financial Holding |
Chunghwa Telecom and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Telecom and Cathay Financial
The main advantage of trading using opposite Chunghwa Telecom and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, Cathay Financial 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 Cathay Financial will offset losses from the drop in Cathay Financial's 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 |
| Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. CTBC Financial Holding | Cathay Financial vs. Mega Financial Holding | Cathay Financial vs. First Financial Holding |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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