Correlation Between Chunghwa Telecom and Chialin Precision

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

Diversification Opportunities for Chunghwa Telecom and Chialin Precision

0.47

Correlation Coefficient

Chunghwa Telecom  Chialin Precision

Very weak diversification

The 3 months correlation between Chunghwa and Chialin is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Chialin Precision Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chialin Precision 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 Chialin Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chialin Precision has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Chialin Precision go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and Chialin Precision

Assuming the 90 days trading horizon Chunghwa Telecom is expected to generate 4.42 times less return on investment than Chialin Precision. But when comparing it to its historical volatility, Chunghwa Telecom Co is 2.67 times less risky than Chialin Precision. It trades about 0.07 of its potential returns per unit of risk. Chialin Precision Industrial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8,380  in Chialin Precision Industrial on October 25, 2024 and sell it today you would earn a total of  770.00  from holding Chialin Precision Industrial or generate 9.19% 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.  Chialin Precision Industrial

Chunghwa Telecom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 5 (%) 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.

Chialin Precision

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chialin Precision Industrial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chialin Precision may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Chunghwa Telecom and Chialin Precision

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

The idea behind Chunghwa Telecom Co and Chialin Precision Industrial 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.