Correlation Between MP Materials and Chunghwa Telecom

Can any of the company-specific risk be diversified away by investing in both MP Materials and Chunghwa Telecom 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 MP Materials and Chunghwa Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MP Materials Corp and Chunghwa Telecom Co,, you can compare the effects of market volatilities on MP Materials and Chunghwa Telecom 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 MP Materials with a short position of Chunghwa Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Chunghwa Telecom.

Diversification Opportunities for MP Materials and Chunghwa Telecom

0.7

Correlation Coefficient

MP Materials  Chunghwa Telecom

Poor diversification

The 3 months correlation between M2PM34 and Chunghwa is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Chunghwa Telecom Co, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom Co, and MP Materials 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 MP Materials Corp are associated (or correlated) with Chunghwa Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Telecom Co, has no effect on the direction of MP Materials i.e., MP Materials and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between MP Materials and Chunghwa Telecom

Assuming the 90 days trading horizon MP Materials Corp is expected to generate 1.22 times more return on investment than Chunghwa Telecom. However, MP Materials is 1.22 times more volatile than Chunghwa Telecom Co,. It trades about 0.17 of its potential returns per unit of risk. Chunghwa Telecom Co, is currently generating about 0.13 per unit of risk. If you would invest  2,028  in MP Materials Corp on December 26, 2024 and sell it today you would earn a total of  1,032  from holding MP Materials Corp or generate 50.89% return on investment over 90 days.

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

MP Materials Corp  vs.  Chunghwa Telecom Co,

MP Materials Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Chunghwa Telecom Co,

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co, are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Chunghwa Telecom sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Chunghwa Telecom

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

The idea behind MP Materials Corp and Chunghwa Telecom Co, 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.