Correlation Between Chunghwa Telecom and SK Telecom

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

Diversification Opportunities for Chunghwa Telecom and SK Telecom

0.7

Correlation Coefficient

Chunghwa Telecom  SK Telecom

Poor diversification

The 3 months correlation between Chunghwa and SKM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and SK Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Telecom 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 SK Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Telecom has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and SK Telecom go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and SK Telecom

Considering the 90-day investment horizon Chunghwa Telecom is expected to generate 2.7 times less return on investment than SK Telecom. But when comparing it to its historical volatility, Chunghwa Telecom Co is 1.59 times less risky than SK Telecom. It trades about 0.02 of its potential returns per unit of risk. SK Telecom Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,073  in SK Telecom Co on September 23, 2024 and sell it today you would earn a total of  84.00  from holding SK Telecom Co or generate 4.05% 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.  SK Telecom Co

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.

SK Telecom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Chunghwa Telecom and SK Telecom

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

The idea behind Chunghwa Telecom Co and SK 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.