Correlation Between Tencent Music and United Parcel

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

Diversification Opportunities for Tencent Music and United Parcel

-0.4

Correlation Coefficient

Tencent Music  United Parcel

Very good diversification

The 3 months correlation between Tencent and United is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Tencent Music i.e., Tencent Music and United Parcel go up and down completely randomly.

Pair Corralation between Tencent Music and United Parcel

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.97 times more return on investment than United Parcel. However, Tencent Music is 1.97 times more volatile than United Parcel Service. It trades about 0.04 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.02 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Tencent Music Entertainment  vs.  United Parcel Service

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.

United Parcel Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Parcel is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tencent Music and United Parcel

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

The idea behind Tencent Music Entertainment and United Parcel Service 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.