Correlation Between Chunghwa Telecom and Advantech

Can any of the company-specific risk be diversified away by investing in both Chunghwa Telecom and Advantech 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 Advantech 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 Advantech Co, you can compare the effects of market volatilities on Chunghwa Telecom and Advantech 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 Advantech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Telecom and Advantech.

Diversification Opportunities for Chunghwa Telecom and Advantech

0.69

Correlation Coefficient

Chunghwa Telecom  Advantech

Poor diversification

The 3 months correlation between Chunghwa and Advantech is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech 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 Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Advantech go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and Advantech

Assuming the 90 days trading horizon Chunghwa Telecom is expected to generate 12.17 times less return on investment than Advantech. But when comparing it to its historical volatility, Chunghwa Telecom Co is 4.08 times less risky than Advantech. It trades about 0.05 of its potential returns per unit of risk. Advantech Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  31,600  in Advantech Co on October 23, 2024 and sell it today you would earn a total of  4,950  from holding Advantech Co or generate 15.66% return on investment over 90 days.

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

Chunghwa Telecom Co  vs.  Advantech Co

Chunghwa Telecom

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 3 (%) 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.

Advantech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chunghwa Telecom and Advantech

The main advantage of trading using opposite Chunghwa Telecom and Advantech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Telecom position performs unexpectedly, Advantech 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 Advantech will offset losses from the drop in Advantech's long position.

The idea behind Chunghwa Telecom Co and Advantech 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.