Correlation Between Reliance Steel and Chunghwa Telecom

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

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

Diversification Opportunities for Reliance Steel and Chunghwa Telecom

0.76

Correlation Coefficient

Reliance Steel  Chunghwa Telecom

Poor diversification

The 3 months correlation between Reliance and Chunghwa is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Reliance Steel 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 Reliance Steel Aluminum 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 has no effect on the direction of Reliance Steel i.e., Reliance Steel and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between Reliance Steel and Chunghwa Telecom

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.74 times more return on investment than Chunghwa Telecom. However, Reliance Steel is 1.74 times more volatile than Chunghwa Telecom Co. It trades about 0.01 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about -0.02 per unit of risk. If you would invest  25,870  in Reliance Steel Aluminum on December 25, 2024 and sell it today you would earn a total of  30.00  from holding Reliance Steel Aluminum or generate 0.12% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Chunghwa Telecom Co

Reliance Steel Aluminum

Risk-Adjusted Performance

Very Weak

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

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

Pair Trading with Reliance Steel and Chunghwa Telecom

The main advantage of trading using opposite Reliance Steel and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel 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 Reliance Steel Aluminum 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.