Correlation Between Cheetah Mobile and Tencent Music

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

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

Diversification Opportunities for Cheetah Mobile and Tencent Music

0.64

Correlation Coefficient

Cheetah Mobile  Tencent Music

Poor diversification

The 3 months correlation between Cheetah and Tencent is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cheetah Mobile 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 Cheetah Mobile 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 Cheetah Mobile 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 Cheetah Mobile i.e., Cheetah Mobile and Tencent Music go up and down completely randomly.

Pair Corralation between Cheetah Mobile and Tencent Music

Given the investment horizon of 90 days Cheetah Mobile is expected to generate 1.43 times more return on investment than Tencent Music. However, Cheetah Mobile is 1.43 times more volatile than Tencent Music Entertainment. It trades about 0.17 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.12 per unit of risk. If you would invest  442.00  in Cheetah Mobile on November 29, 2024 and sell it today you would earn a total of  93.00  from holding Cheetah Mobile or generate 21.04% return on investment over 90 days.

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

Cheetah Mobile  vs.  Tencent Music Entertainment

Cheetah Mobile

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cheetah Mobile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Cheetah Mobile is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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. In spite of rather uncertain primary indicators, Tencent Music exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheetah Mobile and Tencent Music

The main advantage of trading using opposite Cheetah Mobile and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheetah Mobile 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 Cheetah Mobile 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.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.