Correlation Between Chunghwa Telecom and Chief Telecom
Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and Chief Telecom 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 Chief Telecom 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 Chief Telecom, you can compare the effects of market volatilities on Chunghwa Telecom and Chief Telecom 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 Chief Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and Chief Telecom.
Diversification Opportunities for Chunghwa Telecom and Chief Telecom
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Chunghwa and Chief is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Chief Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chief Telecom 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 Chief Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chief Telecom has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Chief Telecom go up and down completely randomly.
Pair Corralation between Chunghwa Telecom and Chief Telecom
Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to under-perform the Chief Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Chunghwa Telecom Co is 3.36 times less risky than Chief Telecom. The stock trades about -0.01 of its potential returns per unit of risk. The Chief Telecom is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 37,321 in Chief Telecom on November 7, 2024 and sell it today you would earn a total of 5,229 from holding Chief Telecom or generate 14.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Telecom Co vs. Chief Telecom
Performance |
| Timeline |
| Chunghwa Telecom |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Chief Telecom |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Chunghwa Telecom and Chief Telecom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Telecom and Chief Telecom
The main advantage of trading using opposite Chunghwa Telecom and Chief Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, Chief Telecom 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 Chief Telecom will offset losses from the drop in Chief Telecom's long position.The idea behind Chunghwa Telecom Co and Chief Telecom 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.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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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