Correlation Between Chunghwa Telecom and CarMax

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

Diversification Opportunities for Chunghwa Telecom and CarMax

0.65

Correlation Coefficient

Chunghwa Telecom  CarMax

Poor diversification

The 3 months correlation between Chunghwa and CarMax is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and CarMax Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarMax Inc 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 CarMax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarMax Inc has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and CarMax go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and CarMax

Assuming the 90 days trading horizon Chunghwa Telecom Co is expected to generate 0.46 times more return on investment than CarMax. However, Chunghwa Telecom Co is 2.18 times less risky than CarMax. It trades about -0.01 of its potential returns per unit of risk. CarMax Inc is currently generating about -0.17 per unit of risk. If you would invest  3,580  in Chunghwa Telecom Co on December 21, 2024 and sell it today you would lose (20.00) from holding Chunghwa Telecom Co or give up 0.56% of portfolio value over 90 days.

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

Chunghwa Telecom Co  vs.  CarMax Inc

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.

CarMax Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarMax Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chunghwa Telecom and CarMax

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

The idea behind Chunghwa Telecom Co and CarMax Inc 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.

Check out your portfolio center.

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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.