Correlation Between AU Optronics and Chunghwa Telecom

Can any of the company-specific risk be diversified away by investing in both AU Optronics 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 AU Optronics and Chunghwa Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AU Optronics and Chunghwa Telecom Co, you can compare the effects of market volatilities on AU Optronics 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 AU Optronics with a short position of Chunghwa Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of AU Optronics and Chunghwa Telecom.

Diversification Opportunities for AU Optronics and Chunghwa Telecom

0.44

Correlation Coefficient

AU Optronics  Chunghwa Telecom

Very weak diversification

The 3 months correlation between 2409 and Chunghwa is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and AU Optronics 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 AU Optronics 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 AU Optronics i.e., AU Optronics and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between AU Optronics and Chunghwa Telecom

Assuming the 90 days trading horizon AU Optronics is expected to under-perform the Chunghwa Telecom. In addition to that, AU Optronics is 4.27 times more volatile than Chunghwa Telecom Co. It trades about -0.03 of its total potential returns per unit of risk. Chunghwa Telecom Co is currently generating about 0.19 per unit of volatility. If you would invest  12,400  in Chunghwa Telecom Co on December 30, 2024 and sell it today you would earn a total of  600.00  from holding Chunghwa Telecom Co or generate 4.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

AU Optronics  vs.  Chunghwa Telecom Co

AU Optronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days AU Optronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AU Optronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chunghwa Telecom

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Chunghwa Telecom is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with AU Optronics and Chunghwa Telecom

The main advantage of trading using opposite AU Optronics and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AU Optronics 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 AU Optronics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.