Correlation Between Tencent Music and Haier Smart

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

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

Diversification Opportunities for Tencent Music and Haier Smart

0.73

Correlation Coefficient

Tencent Music  Haier Smart

Poor diversification

The 3 months correlation between Tencent and Haier is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Haier Smart Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Haier Smart Home and Tencent Music 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 Tencent Music Entertainment are associated (or correlated) with Haier Smart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Haier Smart Home has no effect on the direction of Tencent Music i.e., Tencent Music and Haier Smart go up and down completely randomly.

Pair Corralation between Tencent Music and Haier Smart

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 2.74 times more return on investment than Haier Smart. However, Tencent Music is 2.74 times more volatile than Haier Smart Home. It trades about 0.09 of its potential returns per unit of risk. Haier Smart Home is currently generating about 0.05 per unit of risk. If you would invest  1,100  in Tencent Music Entertainment on December 30, 2024 and sell it today you would earn a total of  210.00  from holding Tencent Music Entertainment or generate 19.09% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Haier Smart Home

Tencent Music Entert

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 7 (%) 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.

Haier Smart Home

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Haier Smart Home are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Haier Smart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tencent Music and Haier Smart

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

The idea behind Tencent Music Entertainment and Haier Smart Home 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.