Correlation Between Tencent Music and Xcel Energy

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

Diversification Opportunities for Tencent Music and Xcel Energy

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Tencent and Xcel is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Tencent Music i.e., Tencent Music and Xcel Energy go up and down completely randomly.

Pair Corralation between Tencent Music and Xcel Energy

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 2.07 times more return on investment than Xcel Energy. However, Tencent Music is 2.07 times more volatile than Xcel Energy. It trades about 0.13 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.12 per unit of risk. If you would invest  1,080  in Tencent Music Entertainment on September 12, 2024 and sell it today you would earn a total of  100.00  from holding Tencent Music Entertainment or generate 9.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

Tencent Music Entertainment  vs.  Xcel Energy

 Performance 
       Timeline  
Tencent Music Entert 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 13 (%) 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.
Xcel Energy 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Xcel Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Tencent Music and Xcel Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Music and Xcel Energy

The main advantage of trading using opposite Tencent Music and Xcel Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Xcel Energy 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 Xcel Energy will offset losses from the drop in Xcel Energy's long position.
The idea behind Tencent Music Entertainment and Xcel Energy 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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