Correlation Between Tencent Music and Freshpet

Can any of the company-specific risk be diversified away by investing in both Tencent Music and Freshpet 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 Freshpet 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 Freshpet, you can compare the effects of market volatilities on Tencent Music and Freshpet 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 Freshpet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Freshpet.

Diversification Opportunities for Tencent Music and Freshpet

0.1

Correlation Coefficient

Tencent Music  Freshpet

Average diversification

The 3 months correlation between Tencent and Freshpet is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Tencent Music i.e., Tencent Music and Freshpet go up and down completely randomly.

Pair Corralation between Tencent Music and Freshpet

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to under-perform the Freshpet. In addition to that, Tencent Music is 1.53 times more volatile than Freshpet. It trades about -0.15 of its total potential returns per unit of risk. Freshpet is currently generating about 0.39 per unit of volatility. If you would invest  13,950  in Freshpet on October 26, 2024 and sell it today you would earn a total of  1,280  from holding Freshpet or generate 9.18% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Freshpet

Tencent Music Entert

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Tencent Music Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tencent Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Freshpet

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Tencent Music and Freshpet

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

The idea behind Tencent Music Entertainment and Freshpet 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.