Correlation Between Union Pacific and Chunghwa Telecom

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

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

Diversification Opportunities for Union Pacific and Chunghwa Telecom

0.84

Correlation Coefficient

Union Pacific  Chunghwa Telecom

Very poor diversification

The 3 months correlation between Union and Chunghwa is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Union Pacific 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 Union Pacific 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 Union Pacific i.e., Union Pacific and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between Union Pacific and Chunghwa Telecom

Assuming the 90 days horizon Union Pacific is expected to generate 1.62 times more return on investment than Chunghwa Telecom. However, Union Pacific is 1.62 times more volatile than Chunghwa Telecom Co. It trades about 0.0 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about -0.01 per unit of risk. If you would invest  21,913  in Union Pacific on December 29, 2024 and sell it today you would lose (118.00) from holding Union Pacific or give up 0.54% of portfolio value over 90 days.

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

Union Pacific  vs.  Chunghwa Telecom Co

Union Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Union Pacific 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 Union Pacific and Chunghwa Telecom

The main advantage of trading using opposite Union Pacific and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Pacific 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 Union Pacific 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.