Correlation Between Analog Devices and Tencent Music

Can any of the company-specific risk be diversified away by investing in both Analog Devices and Tencent Music 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 Analog Devices and Tencent Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Analog Devices and Tencent Music Entertainment, you can compare the effects of market volatilities on Analog Devices and Tencent Music 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 Analog Devices with a short position of Tencent Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and Tencent Music.

Diversification Opportunities for Analog Devices and Tencent Music

0.31

Correlation Coefficient

Analog Devices  Tencent Music

Weak diversification

The 3 months correlation between Analog and Tencent is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and Tencent Music Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Music Entert and Analog Devices 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 Analog Devices are associated (or correlated) with Tencent Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Music Entert has no effect on the direction of Analog Devices i.e., Analog Devices and Tencent Music go up and down completely randomly.

Pair Corralation between Analog Devices and Tencent Music

Considering the 90-day investment horizon Analog Devices is expected to generate 0.64 times more return on investment than Tencent Music. However, Analog Devices is 1.57 times less risky than Tencent Music. It trades about 0.04 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.02 per unit of risk. If you would invest  22,218  in Analog Devices on December 2, 2024 and sell it today you would earn a total of  788.00  from holding Analog Devices or generate 3.55% return on investment over 90 days.

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

Analog Devices  vs.  Tencent Music Entertainment

Analog Devices

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Tencent Music Entert

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Tencent Music is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Analog Devices and Tencent Music

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

The idea behind Analog Devices and Tencent Music Entertainment 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.