Correlation Between Tencent Music and Seven West

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

Diversification Opportunities for Tencent Music and Seven West

0.29

Correlation Coefficient

Tencent Music  Seven West

Modest diversification

The 3 months correlation between Tencent and Seven is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Seven West Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven West Media 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 Seven West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven West Media has no effect on the direction of Tencent Music i.e., Tencent Music and Seven West go up and down completely randomly.

Pair Corralation between Tencent Music and Seven West

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 0.92 times more return on investment than Seven West. However, Tencent Music Entertainment is 1.09 times less risky than Seven West. It trades about 0.1 of its potential returns per unit of risk. Seven West Media is currently generating about 0.04 per unit of risk. If you would invest  1,100  in Tencent Music Entertainment on December 29, 2024 and sell it today you would earn a total of  250.00  from holding Tencent Music Entertainment or generate 22.73% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Seven West Media

Tencent Music Entert

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tencent Music reported solid returns over the last few months and may actually be approaching a breakup point.

Seven West Media

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seven West Media are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Seven West may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tencent Music and Seven West

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

The idea behind Tencent Music Entertainment and Seven West Media 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.