Correlation Between Telefonica Brasil and Chunghwa Telecom

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

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

Diversification Opportunities for Telefonica Brasil and Chunghwa Telecom

0.72

Correlation Coefficient

Telefonica Brasil  Chunghwa Telecom

Poor diversification

The 3 months correlation between Telefonica and Chunghwa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica Brasil SA and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and Telefonica Brasil 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 Telefonica Brasil SA 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 Telefonica Brasil i.e., Telefonica Brasil and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between Telefonica Brasil and Chunghwa Telecom

Considering the 90-day investment horizon Telefonica Brasil SA is expected to generate 2.82 times more return on investment than Chunghwa Telecom. However, Telefonica Brasil is 2.82 times more volatile than Chunghwa Telecom Co. It trades about 0.12 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about 0.08 per unit of risk. If you would invest  761.00  in Telefonica Brasil SA on December 27, 2024 and sell it today you would earn a total of  99.00  from holding Telefonica Brasil SA or generate 13.01% return on investment over 90 days.

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

Telefonica Brasil SA  vs.  Chunghwa Telecom Co

Telefonica Brasil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica Brasil SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Telefonica Brasil showed solid returns over the last few months and may actually be approaching a breakup point.

Chunghwa Telecom

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Chunghwa Telecom is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Telefonica Brasil and Chunghwa Telecom

The main advantage of trading using opposite Telefonica Brasil and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telefonica Brasil 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 Telefonica Brasil SA 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.