Correlation Between Tencent Music and Rollins

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

Diversification Opportunities for Tencent Music and Rollins

0.09

Correlation Coefficient

Tencent Music  Rollins

Significant diversification

The 3 months correlation between Tencent and Rollins is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Rollins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rollins 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 Rollins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rollins has no effect on the direction of Tencent Music i.e., Tencent Music and Rollins go up and down completely randomly.

Pair Corralation between Tencent Music and Rollins

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to under-perform the Rollins. In addition to that, Tencent Music is 1.89 times more volatile than Rollins. It trades about -0.15 of its total potential returns per unit of risk. Rollins is currently generating about 0.13 per unit of volatility. If you would invest  4,530  in Rollins on October 26, 2024 and sell it today you would earn a total of  110.00  from holding Rollins or generate 2.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Tencent Music Entertainment  vs.  Rollins

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.

Rollins

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rollins are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Rollins may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tencent Music and Rollins

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

The idea behind Tencent Music Entertainment and Rollins 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.