Correlation Between Tencent Holdings and Tencent Music

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

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

Diversification Opportunities for Tencent Holdings and Tencent Music

0.87

Correlation Coefficient

Tencent Holdings  Tencent Music

Very poor diversification

The 3 months correlation between Tencent and Tencent is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings 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 Tencent Holdings 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 Holdings 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 Tencent Holdings i.e., Tencent Holdings and Tencent Music go up and down completely randomly.

Pair Corralation between Tencent Holdings and Tencent Music

Assuming the 90 days horizon Tencent Holdings is expected to generate 2.94 times less return on investment than Tencent Music. But when comparing it to its historical volatility, Tencent Holdings is 1.24 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 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,046  in Tencent Music Entertainment on September 4, 2024 and sell it today you would earn a total of  173.00  from holding Tencent Music Entertainment or generate 16.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Tencent Holdings  vs.  Tencent Music Entertainment

Tencent Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tencent Music Entert

Risk-Adjusted Performance

6 of 100

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 Tencent Holdings and Tencent Music

The main advantage of trading using opposite Tencent Holdings and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings 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 Tencent Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.