Correlation Between Chunghwa Telecom and Taiwan Speciality

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

Diversification Opportunities for Chunghwa Telecom and Taiwan Speciality

0.58

Correlation Coefficient

Chunghwa Telecom  Taiwan Speciality

Very weak diversification

The 3 months correlation between Chunghwa and Taiwan is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality 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 Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Taiwan Speciality go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and Taiwan Speciality

Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.19 times more return on investment than Taiwan Speciality. However, Chunghwa Telecom Co is 5.38 times less risky than Taiwan Speciality. It trades about -0.03 of its potential returns per unit of risk. Taiwan Speciality Chemicals is currently generating about -0.03 per unit of risk. If you would invest  12,500  in Chunghwa Telecom Co on September 14, 2024 and sell it today you would lose (150.00) from holding Chunghwa Telecom Co or give up 1.2% of portfolio value over 90 days.

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

Chunghwa Telecom Co  vs.  Taiwan Speciality Chemicals

Chunghwa Telecom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chunghwa Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Speciality Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Speciality 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 Chunghwa Telecom and Taiwan Speciality

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

The idea behind Chunghwa Telecom Co and Taiwan Speciality Chemicals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.