Correlation Between Chunghwa Telecom and MAGIC SOFTWARE
Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and MAGIC SOFTWARE 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 MAGIC SOFTWARE 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 MAGIC SOFTWARE ENTR, you can compare the effects of market volatilities on Chunghwa Telecom and MAGIC SOFTWARE 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 MAGIC SOFTWARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and MAGIC SOFTWARE.
Diversification Opportunities for Chunghwa Telecom and MAGIC SOFTWARE
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Chunghwa and MAGIC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and MAGIC SOFTWARE ENTR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAGIC SOFTWARE ENTR 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 MAGIC SOFTWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAGIC SOFTWARE ENTR has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and MAGIC SOFTWARE go up and down completely randomly.
Pair Corralation between Chunghwa Telecom and MAGIC SOFTWARE
Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.55 times more return on investment than MAGIC SOFTWARE. However, Chunghwa Telecom Co is 1.81 times less risky than MAGIC SOFTWARE. It trades about 0.11 of its potential returns per unit of risk. MAGIC SOFTWARE ENTR is currently generating about 0.05 per unit of risk. If you would invest 3,480 in Chunghwa Telecom Co on August 28, 2024 and sell it today you would earn a total of 120.00 from holding Chunghwa Telecom Co or generate 3.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Telecom Co vs. MAGIC SOFTWARE ENTR
Performance |
| Timeline |
| Chunghwa Telecom |
| MAGIC SOFTWARE ENTR |
Chunghwa Telecom and MAGIC SOFTWARE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Telecom and MAGIC SOFTWARE
The main advantage of trading using opposite Chunghwa Telecom and MAGIC SOFTWARE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, MAGIC SOFTWARE 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 MAGIC SOFTWARE will offset losses from the drop in MAGIC SOFTWARE's long position.The idea behind Chunghwa Telecom Co and MAGIC SOFTWARE ENTR 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.| MAGIC SOFTWARE vs. Apple Inc | MAGIC SOFTWARE vs. Apple Inc | MAGIC SOFTWARE vs. Microsoft | MAGIC SOFTWARE vs. Microsoft |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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