Correlation Between TPK Holding and Chunghwa Telecom

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

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

Diversification Opportunities for TPK Holding and Chunghwa Telecom

0.67

Correlation Coefficient

TPK Holding  Chunghwa Telecom

Poor diversification

The 3 months correlation between TPK and Chunghwa is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding TPK Holding Co and Chunghwa Telecom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Telecom and TPK Holding 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 TPK Holding Co 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 TPK Holding i.e., TPK Holding and Chunghwa Telecom go up and down completely randomly.

Pair Corralation between TPK Holding and Chunghwa Telecom

Assuming the 90 days trading horizon TPK Holding Co is expected to generate 2.5 times more return on investment than Chunghwa Telecom. However, TPK Holding is 2.5 times more volatile than Chunghwa Telecom Co. It trades about 0.06 of its potential returns per unit of risk. Chunghwa Telecom Co is currently generating about 0.09 per unit of risk. If you would invest  3,505  in TPK Holding Co on March 12, 2024 and sell it today you would earn a total of  200.00  from holding TPK Holding Co or generate 5.71% return on investment over 90 days.

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

TPK Holding Co  vs.  Chunghwa Telecom Co

TPK Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPK Holding Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TPK Holding may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Chunghwa Telecom

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Chunghwa Telecom is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with TPK Holding and Chunghwa Telecom

The main advantage of trading using opposite TPK Holding and Chunghwa Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPK Holding 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 TPK Holding Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.