Correlation Between Chung Hwa and Chunghwa Telecom
Can any of the company-specific risk be diversified away by investing in both Chung Hwa and Chunghwa 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 Chung Hwa and Chunghwa Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chung Hwa Food and Chunghwa Telecom Co, you can compare the effects of market volatilities on Chung Hwa and Chunghwa 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 Chung Hwa with a short position of Chunghwa Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Chunghwa Telecom.
Diversification Opportunities for Chung Hwa and Chunghwa Telecom
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Chung and Chunghwa is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Chung Hwa 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 Chung Hwa Food are associated (or correlated) with Chunghwa Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Telecom has no effect on the direction of Chung Hwa i.e., Chung Hwa and Chunghwa Telecom go up and down completely randomly.
Pair Corralation between Chung Hwa and Chunghwa Telecom
Assuming the 90 days trading horizon Chung Hwa Food is expected to under-perform the Chunghwa Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Food is 1.45 times less risky than Chunghwa Telecom. The stock trades about -0.1 of its potential returns per unit of risk. The Chunghwa Telecom Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 12,650 in Chunghwa Telecom Co on November 7, 2024 and sell it today you would lose (150.00) from holding Chunghwa Telecom Co or give up 1.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chung Hwa Food vs. Chunghwa Telecom Co
Performance |
| Timeline |
| Chung Hwa Food |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Chunghwa Telecom |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Chung Hwa and Chunghwa Telecom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chung Hwa and Chunghwa Telecom
The main advantage of trading using opposite Chung Hwa and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hwa position performs unexpectedly, Chunghwa 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 Chunghwa Telecom will offset losses from the drop in Chunghwa Telecom's long position.The idea behind Chung Hwa Food and Chunghwa Telecom Co 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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