Correlation Between Chung Hwa and Chief Telecom
Can any of the company-specific risk be diversified away by investing in both Chung Hwa 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 Chung Hwa and Chief 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 Chief Telecom, you can compare the effects of market volatilities on Chung Hwa 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 Chung Hwa with a short position of Chief Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Chief Telecom.
Diversification Opportunities for Chung Hwa and Chief Telecom
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chung and Chief is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Chief Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chief 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 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 Chung Hwa i.e., Chung Hwa and Chief Telecom go up and down completely randomly.
Pair Corralation between Chung Hwa and Chief Telecom
Assuming the 90 days trading horizon Chung Hwa Food is expected to under-perform the Chief Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Food is 4.86 times less risky than Chief Telecom. The stock trades about -0.1 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 Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chung Hwa Food vs. Chief Telecom
Performance |
| Timeline |
| Chung Hwa Food |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Chief Telecom |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Chung Hwa and Chief Telecom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chung Hwa and Chief Telecom
The main advantage of trading using opposite Chung Hwa and Chief Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hwa 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 Chung Hwa Food 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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