Correlation Between National Beverage and Tencent Music

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

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

Diversification Opportunities for National Beverage and Tencent Music

-0.16

Correlation Coefficient

National Beverage  Tencent Music

Good diversification

The 3 months correlation between National and Tencent is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp 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 National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and Tencent Music go up and down completely randomly.

Pair Corralation between National Beverage and Tencent Music

Assuming the 90 days horizon National Beverage is expected to generate 9.0 times less return on investment than Tencent Music. But when comparing it to its historical volatility, National Beverage Corp is 1.7 times less risky than Tencent Music. It trades about 0.01 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  626.00  in Tencent Music Entertainment on October 6, 2024 and sell it today you would earn a total of  464.00  from holding Tencent Music Entertainment or generate 74.12% return on investment over 90 days.

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

National Beverage Corp  vs.  Tencent Music Entertainment

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage 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

0 of 100

Very Weak

Over the last 90 days Tencent Music Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with National Beverage and Tencent Music

The main advantage of trading using opposite National Beverage and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.