Correlation Between Tencent Music and Whitehaven Coal

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

Diversification Opportunities for Tencent Music and Whitehaven Coal

-0.62

Correlation Coefficient

Tencent Music  Whitehaven Coal

Excellent diversification

The 3 months correlation between Tencent and Whitehaven is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Whitehaven Coal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of Tencent Music i.e., Tencent Music and Whitehaven Coal go up and down completely randomly.

Pair Corralation between Tencent Music and Whitehaven Coal

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.62 times more return on investment than Whitehaven Coal. However, Tencent Music is 1.62 times more volatile than Whitehaven Coal Limited. It trades about 0.08 of its potential returns per unit of risk. Whitehaven Coal Limited is currently generating about -0.05 per unit of risk. If you would invest  1,120  in Tencent Music Entertainment on December 24, 2024 and sell it today you would earn a total of  160.00  from holding Tencent Music Entertainment or generate 14.29% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Whitehaven Coal Limited

Tencent Music Entert

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 6 (%) 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.

Whitehaven Coal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Whitehaven Coal Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Pair Trading with Tencent Music and Whitehaven Coal

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

The idea behind Tencent Music Entertainment and Whitehaven Coal Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.