Correlation Between UNIVMUSIC GRPADR050 and Tencent Music

Can any of the company-specific risk be diversified away by investing in both UNIVMUSIC GRPADR050 and Tencent Music 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 UNIVMUSIC GRPADR050 and Tencent Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UNIVMUSIC GRPADR050 and Tencent Music Entertainment, you can compare the effects of market volatilities on UNIVMUSIC GRPADR050 and Tencent Music 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 UNIVMUSIC GRPADR050 with a short position of Tencent Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNIVMUSIC GRPADR050 and Tencent Music.

Diversification Opportunities for UNIVMUSIC GRPADR050 and Tencent Music

0.22

Correlation Coefficient

UNIVMUSIC GRPADR050  Tencent Music

Modest diversification

The 3 months correlation between UNIVMUSIC and Tencent is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding UNIVMUSIC GRPADR050 and Tencent Music Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Music Entert and UNIVMUSIC GRPADR050 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 UNIVMUSIC GRPADR050 are associated (or correlated) with Tencent Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Music Entert has no effect on the direction of UNIVMUSIC GRPADR050 i.e., UNIVMUSIC GRPADR050 and Tencent Music go up and down completely randomly.

Pair Corralation between UNIVMUSIC GRPADR050 and Tencent Music

Assuming the 90 days trading horizon UNIVMUSIC GRPADR050 is expected to generate 8.62 times less return on investment than Tencent Music. But when comparing it to its historical volatility, UNIVMUSIC GRPADR050 is 2.61 times less risky than Tencent Music. It trades about 0.05 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  850.00  in Tencent Music Entertainment on September 13, 2024 and sell it today you would earn a total of  330.00  from holding Tencent Music Entertainment or generate 38.82% return on investment over 90 days.

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

UNIVMUSIC GRPADR050  vs.  Tencent Music Entertainment

UNIVMUSIC GRPADR050

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVMUSIC GRPADR050 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, UNIVMUSIC GRPADR050 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tencent Music Entert

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tencent Music reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UNIVMUSIC GRPADR050 and Tencent Music

The main advantage of trading using opposite UNIVMUSIC GRPADR050 and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNIVMUSIC GRPADR050 position performs unexpectedly, Tencent Music 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 Tencent Music will offset losses from the drop in Tencent Music's long position.

The idea behind UNIVMUSIC GRPADR050 and Tencent Music Entertainment 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.