Correlation Between Chunghwa Telecom and TIM Participacoes

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

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

Diversification Opportunities for Chunghwa Telecom and TIM Participacoes

0.93

Correlation Coefficient

Chunghwa Telecom  TIM Participacoes

Almost no diversification

The 3 months correlation between Chunghwa and TIM is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Telecom Co and TIM Participacoes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIM Participacoes and Chunghwa Telecom 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 Chunghwa Telecom Co are associated (or correlated) with TIM Participacoes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIM Participacoes has no effect on the direction of Chunghwa Telecom i.e., Chunghwa Telecom and TIM Participacoes go up and down completely randomly.

Pair Corralation between Chunghwa Telecom and TIM Participacoes

Considering the 90-day investment horizon Chunghwa Telecom is expected to generate 1.52 times less return on investment than TIM Participacoes. But when comparing it to its historical volatility, Chunghwa Telecom Co is 1.57 times less risky than TIM Participacoes. It trades about 0.2 of its potential returns per unit of risk. TIM Participacoes SA is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,571  in TIM Participacoes SA on April 3, 2025 and sell it today you would earn a total of  446.00  from holding TIM Participacoes SA or generate 28.39% return on investment over 90 days.

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

Chunghwa Telecom Co  vs.  TIM Participacoes SA

Chunghwa Telecom

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Telecom Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical indicators, Chunghwa Telecom unveiled solid returns over the last few months and may actually be approaching a breakup point.

TIM Participacoes

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TIM Participacoes SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, TIM Participacoes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chunghwa Telecom and TIM Participacoes

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

The idea behind Chunghwa Telecom Co and TIM Participacoes SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.