Correlation Between Tencent Music and Anglo American

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

Diversification Opportunities for Tencent Music and Anglo American

0.41

Correlation Coefficient

Tencent Music  Anglo American

Very weak diversification

The 3 months correlation between Tencent and Anglo is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Anglo American plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American plc 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American plc has no effect on the direction of Tencent Music i.e., Tencent Music and Anglo American go up and down completely randomly.

Pair Corralation between Tencent Music and Anglo American

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to under-perform the Anglo American. In addition to that, Tencent Music is 1.72 times more volatile than Anglo American plc. It trades about -0.3 of its total potential returns per unit of risk. Anglo American plc is currently generating about -0.21 per unit of volatility. If you would invest  3,057  in Anglo American plc on October 8, 2024 and sell it today you would lose (166.00) from holding Anglo American plc or give up 5.43% of portfolio value over 90 days.

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

Tencent Music Entertainment  vs.  Anglo American plc

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Anglo American plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Anglo American is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tencent Music and Anglo American

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

The idea behind Tencent Music Entertainment and Anglo American plc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.