Correlation Between Chunghwa Telecom and ORMAT TECHNOLOGIES

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

Diversification Opportunities for Chunghwa Telecom and ORMAT TECHNOLOGIES

-0.05

Correlation Coefficient

Chunghwa Telecom  ORMAT TECHNOLOGIES

Good diversification

The 3 months correlation between Chunghwa and ORMAT is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and ORMAT TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ORMAT TECHNOLOGIES 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 ORMAT TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ORMAT TECHNOLOGIES has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and ORMAT TECHNOLOGIES go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and ORMAT TECHNOLOGIES

Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.32 times more return on investment than ORMAT TECHNOLOGIES. However, Chunghwa Telecom Co is 3.11 times less risky than ORMAT TECHNOLOGIES. It trades about -0.05 of its potential returns per unit of risk. ORMAT TECHNOLOGIES is currently generating about -0.32 per unit of risk. If you would invest  3,620  in Chunghwa Telecom Co on October 11, 2024 and sell it today you would lose (20.00) from holding Chunghwa Telecom Co or give up 0.55% of portfolio value over 90 days.

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

Chunghwa Telecom Co  vs.  ORMAT TECHNOLOGIES

Chunghwa Telecom

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

ORMAT TECHNOLOGIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ORMAT TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ORMAT TECHNOLOGIES is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Chunghwa Telecom and ORMAT TECHNOLOGIES

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

The idea behind Chunghwa Telecom Co and ORMAT TECHNOLOGIES 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.