Correlation Between Tencent Music and Hyundai

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

Diversification Opportunities for Tencent Music and Hyundai

-0.18

Correlation Coefficient

Tencent Music  Hyundai

Good diversification

The 3 months correlation between Tencent and Hyundai is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor 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 Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Tencent Music i.e., Tencent Music and Hyundai go up and down completely randomly.

Pair Corralation between Tencent Music and Hyundai

Assuming the 90 days trading horizon Tencent Music is expected to generate 1.34 times less return on investment than Hyundai. In addition to that, Tencent Music is 1.4 times more volatile than Hyundai Motor. It trades about 0.03 of its total potential returns per unit of risk. Hyundai Motor is currently generating about 0.06 per unit of volatility. If you would invest  2,710  in Hyundai Motor on October 15, 2024 and sell it today you would earn a total of  2,140  from holding Hyundai Motor or generate 78.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.8%
Values	Daily Returns

Tencent Music Entertainment  vs.  Hyundai Motor

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 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.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tencent Music and Hyundai

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

The idea behind Tencent Music Entertainment and Hyundai Motor 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.