Correlation Between Chunghwa Telecom and WATER WAYS

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

Diversification Opportunities for Chunghwa Telecom and WATER WAYS

-0.02

Correlation Coefficient

Chunghwa Telecom  WATER WAYS

Good diversification

The 3 months correlation between Chunghwa and WATER is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and WATER WAYS TECHS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WATER WAYS TECHS 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 WATER WAYS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WATER WAYS TECHS has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and WATER WAYS go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and WATER WAYS

Assuming the 90 days trading horizon Chunghwa Telecom is expected to generate 176.58 times less return on investment than WATER WAYS. But when comparing it to its historical volatility, Chunghwa Telecom Co is 97.34 times less risky than WATER WAYS. It trades about 0.16 of its potential returns per unit of risk. WATER WAYS TECHS is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  0.30  in WATER WAYS TECHS on October 22, 2024 and sell it today you would earn a total of  0.20  from holding WATER WAYS TECHS or generate 66.67% return on investment over 90 days.

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

Chunghwa Telecom Co  vs.  WATER WAYS TECHS

Chunghwa Telecom

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 3 (%) 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.

WATER WAYS TECHS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WATER WAYS TECHS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, WATER WAYS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chunghwa Telecom and WATER WAYS

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

The idea behind Chunghwa Telecom Co and WATER WAYS TECHS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.