Correlation Between Chunghwa Telecom and Cogent Communications

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

Diversification Opportunities for Chunghwa Telecom and Cogent Communications

0.11

Correlation Coefficient

Chunghwa Telecom  Cogent Communications

Average diversification

The 3 months correlation between Chunghwa and Cogent is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications 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 Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and Cogent Communications go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and Cogent Communications

Assuming the 90 days trading horizon Chunghwa Telecom is expected to generate 2.89 times less return on investment than Cogent Communications. But when comparing it to its historical volatility, Chunghwa Telecom Co is 2.42 times less risky than Cogent Communications. It trades about 0.03 of its potential returns per unit of risk. Cogent Communications Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,381  in Cogent Communications Holdings on October 12, 2024 and sell it today you would earn a total of  1,669  from holding Cogent Communications Holdings or generate 31.02% 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.  Cogent Communications Holdings

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Chunghwa Telecom and Cogent Communications

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

The idea behind Chunghwa Telecom Co and Cogent Communications 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.