Correlation Between Chunghwa Telecom and Digital China

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

Diversification Opportunities for Chunghwa Telecom and Digital China

0.1

Correlation Coefficient

Chunghwa Telecom  Digital China

Average diversification

The 3 months correlation between Chunghwa and Digital is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Digital China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Holdings 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 Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Holdings has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Digital China go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and Digital China

Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.23 times more return on investment than Digital China. However, Chunghwa Telecom Co is 4.27 times less risky than Digital China. It trades about 0.0 of its potential returns per unit of risk. Digital China Holdings is currently generating about -0.05 per unit of risk. If you would invest  3,580  in Chunghwa Telecom Co on December 23, 2024 and sell it today you would earn a total of  0.00  from holding Chunghwa Telecom Co or generate 0.0% return on investment over 90 days.

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

Chunghwa Telecom Co  vs.  Digital China Holdings

Chunghwa Telecom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chunghwa Telecom Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chunghwa Telecom is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Digital China Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital China Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Chunghwa Telecom and Digital China

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

The idea behind Chunghwa Telecom Co and Digital China Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.