Correlation Between Alibaba Group and Chunghwa Telecom

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

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

Diversification Opportunities for Alibaba Group and Chunghwa Telecom

0.37

Correlation Coefficient

Alibaba Group  Chunghwa Telecom

Weak diversification

The 3 months correlation between Alibaba and Chunghwa is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Alibaba Group 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 Alibaba Group Holding 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 Alibaba Group i.e., Alibaba Group and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between Alibaba Group and Chunghwa Telecom

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 5.34 times more return on investment than Chunghwa Telecom. However, Alibaba Group is 5.34 times more volatile than Chunghwa Telecom Co. It trades about 0.01 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about -0.3 per unit of risk. If you would invest  8,493  in Alibaba Group Holding on October 5, 2024 and sell it today you would earn a total of  2.00  from holding Alibaba Group Holding or generate 0.02% return on investment over 90 days.

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

Alibaba Group Holding  vs.  Chunghwa Telecom Co

Alibaba Group Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alibaba Group Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 comparatively stable technical indicators, Chunghwa Telecom is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alibaba Group and Chunghwa Telecom

The main advantage of trading using opposite Alibaba Group and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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 Alibaba Group Holding 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.