Correlation Between Tencent Music and Alphabet

Can any of the company-specific risk be diversified away by investing in both Tencent Music and Alphabet 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 Alphabet 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 Alphabet Inc Class A, you can compare the effects of market volatilities on Tencent Music and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Alphabet.

Diversification Opportunities for Tencent Music and Alphabet

-0.25

Correlation Coefficient

Tencent Music  Alphabet

Very good diversification

The 3 months correlation between Tencent and Alphabet is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Alphabet Inc Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Tencent Music i.e., Tencent Music and Alphabet go up and down completely randomly.

Pair Corralation between Tencent Music and Alphabet

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 1.62 times more return on investment than Alphabet. However, Tencent Music is 1.62 times more volatile than Alphabet Inc Class A. It trades about 0.07 of its potential returns per unit of risk. Alphabet Inc Class A is currently generating about 0.04 per unit of risk. If you would invest  1,141  in Tencent Music Entertainment on November 28, 2024 and sell it today you would earn a total of  130.00  from holding Tencent Music Entertainment or generate 11.39% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Alphabet Inc Class A

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 5 (%) 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.

Alphabet Class A

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Alphabet is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tencent Music and Alphabet

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

The idea behind Tencent Music Entertainment and Alphabet Inc Class A 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.