Correlation Between Tencent Music and Penta-Ocean Construction

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

Diversification Opportunities for Tencent Music and Penta-Ocean Construction

0.57

Correlation Coefficient

Tencent Music  Penta-Ocean Construction

Very weak diversification

The 3 months correlation between Tencent and Penta-Ocean is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Penta Ocean Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penta-Ocean Construction 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 Penta-Ocean Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penta-Ocean Construction has no effect on the direction of Tencent Music i.e., Tencent Music and Penta-Ocean Construction go up and down completely randomly.

Pair Corralation between Tencent Music and Penta-Ocean Construction

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.92 times more return on investment than Penta-Ocean Construction. However, Tencent Music is 1.92 times more volatile than Penta Ocean Construction Co. It trades about 0.04 of its potential returns per unit of risk. Penta Ocean Construction Co is currently generating about -0.01 per unit of risk. If you would invest  762.00  in Tencent Music Entertainment on October 11, 2024 and sell it today you would earn a total of  278.00  from holding Tencent Music Entertainment or generate 36.48% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Penta Ocean Construction Co

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Penta-Ocean Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penta-Ocean Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tencent Music and Penta-Ocean Construction

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

The idea behind Tencent Music Entertainment and Penta Ocean Construction Co 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.