Correlation Between Mastercard Incorporated and Tencent Music

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

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

Diversification Opportunities for Mastercard Incorporated and Tencent Music

-0.15

Correlation Coefficient

Mastercard Incorporated  Tencent Music

Good diversification

The 3 months correlation between Mastercard and Tencent is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard Incorporated 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 Mastercard Incorporated 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 Mastercard Incorporated 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 Mastercard Incorporated i.e., Mastercard Incorporated and Tencent Music go up and down completely randomly.

Pair Corralation between Mastercard Incorporated and Tencent Music

Assuming the 90 days trading horizon Mastercard Incorporated is expected to generate 0.35 times more return on investment than Tencent Music. However, Mastercard Incorporated is 2.88 times less risky than Tencent Music. It trades about -0.02 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about -0.25 per unit of risk. If you would invest  50,190  in Mastercard Incorporated on October 11, 2024 and sell it today you would lose (180.00) from holding Mastercard Incorporated or give up 0.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Mastercard Incorporated  vs.  Tencent Music Entertainment

Mastercard Incorporated

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Mastercard Incorporated may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tencent Music Entert

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tencent Music Entertainment 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 Mastercard Incorporated and Tencent Music

The main advantage of trading using opposite Mastercard Incorporated and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard Incorporated 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 Mastercard Incorporated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..