Correlation Between Tencent Music and Kanzhun

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

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

Diversification Opportunities for Tencent Music and Kanzhun

0.72

Correlation Coefficient

Tencent Music  Kanzhun

Poor diversification

The 3 months correlation between Tencent and Kanzhun is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Kanzhun Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kanzhun Ltd ADR and Tencent Music 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 Music Entertainment are associated (or correlated) with Kanzhun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kanzhun Ltd ADR has no effect on the direction of Tencent Music i.e., Tencent Music and Kanzhun go up and down completely randomly.

Pair Corralation between Tencent Music and Kanzhun

Considering the 90-day investment horizon Tencent Music is expected to generate 1.36 times less return on investment than Kanzhun. In addition to that, Tencent Music is 1.24 times more volatile than Kanzhun Ltd ADR. It trades about 0.12 of its total potential returns per unit of risk. Kanzhun Ltd ADR is currently generating about 0.2 per unit of volatility. If you would invest  1,370  in Kanzhun Ltd ADR on December 28, 2024 and sell it today you would earn a total of  576.00  from holding Kanzhun Ltd ADR or generate 42.04% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Kanzhun Ltd ADR

Tencent Music Entert

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 9 (%) 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.

Kanzhun Ltd ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kanzhun Ltd ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Kanzhun showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Music and Kanzhun

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

The idea behind Tencent Music Entertainment and Kanzhun Ltd ADR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.