Correlation Between HK Electric and Tencent Music

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

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

Diversification Opportunities for HK Electric and Tencent Music

-0.05

Correlation Coefficient

HK Electric  Tencent Music

Good diversification

The 3 months correlation between HKT and Tencent is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments 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 HK Electric 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 HK Electric Investments 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 HK Electric i.e., HK Electric and Tencent Music go up and down completely randomly.

Pair Corralation between HK Electric and Tencent Music

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.19 times more return on investment than Tencent Music. However, HK Electric Investments is 5.36 times less risky than Tencent Music. It trades about -0.24 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about -0.15 per unit of risk. If you would invest  65.00  in HK Electric Investments on October 26, 2024 and sell it today you would lose (1.00) from holding HK Electric Investments or give up 1.54% of portfolio value over 90 days.

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

HK Electric Investments  vs.  Tencent Music Entertainment

HK Electric Investments

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Tencent Music Entert

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with HK Electric and Tencent Music

The main advantage of trading using opposite HK Electric and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric 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 HK Electric Investments 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.