Correlation Between Tencent Music and GBS Software

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

Diversification Opportunities for Tencent Music and GBS Software

-0.39

Correlation Coefficient

Tencent Music  GBS Software

Very good diversification

The 3 months correlation between Tencent and GBS is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and GBS Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GBS Software AG 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 GBS Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GBS Software AG has no effect on the direction of Tencent Music i.e., Tencent Music and GBS Software go up and down completely randomly.

Pair Corralation between Tencent Music and GBS Software

Assuming the 90 days trading horizon Tencent Music is expected to generate 1.26 times less return on investment than GBS Software. In addition to that, Tencent Music is 1.89 times more volatile than GBS Software AG. It trades about 0.03 of its total potential returns per unit of risk. GBS Software AG is currently generating about 0.08 per unit of volatility. If you would invest  246.00  in GBS Software AG on December 20, 2024 and sell it today you would earn a total of  24.00  from holding GBS Software AG or generate 9.76% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  GBS Software AG

Tencent Music Entert

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tencent Music may actually be approaching a critical reversion point that can send shares even higher in April 2025.

GBS Software AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GBS Software AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GBS Software may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tencent Music and GBS Software

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

The idea behind Tencent Music Entertainment and GBS Software AG 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.