Correlation Between Chunghwa Telecom and Automatic Data
Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and Automatic Data 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 Automatic Data 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 Automatic Data Processing, you can compare the effects of market volatilities on Chunghwa Telecom and Automatic Data 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 Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and Automatic Data.
Diversification Opportunities for Chunghwa Telecom and Automatic Data
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Chunghwa and Automatic is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Automatic Data go up and down completely randomly.
Pair Corralation between Chunghwa Telecom and Automatic Data
Assuming the 90 days trading horizon Chunghwa Telecom is expected to generate 2.95 times less return on investment than Automatic Data. But when comparing it to its historical volatility, Chunghwa Telecom Co is 1.21 times less risky than Automatic Data. It trades about 0.05 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 22,884 in Automatic Data Processing on August 27, 2024 and sell it today you would earn a total of 6,111 from holding Automatic Data Processing or generate 26.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Telecom Co vs. Automatic Data Processing
Performance |
| Timeline |
| Chunghwa Telecom |
| Automatic Data Processing |
Chunghwa Telecom and Automatic Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Telecom and Automatic Data
The main advantage of trading using opposite Chunghwa Telecom and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, Automatic Data 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 Automatic Data will offset losses from the drop in Automatic Data's long position.The idea behind Chunghwa Telecom Co and Automatic Data Processing 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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