Correlation Between Cadence Design and Chunghwa Telecom

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

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

Diversification Opportunities for Cadence Design and Chunghwa Telecom

-0.01

Correlation Coefficient

Cadence Design  Chunghwa Telecom

Good diversification

The 3 months correlation between Cadence and Chunghwa is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Design Systems and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Cadence Design 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 Cadence Design Systems 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 Cadence Design i.e., Cadence Design and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between Cadence Design and Chunghwa Telecom

Given the investment horizon of 90 days Cadence Design Systems is expected to generate 3.14 times more return on investment than Chunghwa Telecom. However, Cadence Design is 3.14 times more volatile than Chunghwa Telecom Co. It trades about 0.05 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about -0.06 per unit of risk. If you would invest  28,214  in Cadence Design Systems on October 14, 2024 and sell it today you would earn a total of  1,686  from holding Cadence Design Systems or generate 5.98% return on investment over 90 days.

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

Cadence Design Systems  vs.  Chunghwa Telecom Co

Cadence Design Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cadence Design may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Cadence Design and Chunghwa Telecom

The main advantage of trading using opposite Cadence Design and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadence Design 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 Cadence Design Systems 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.