Correlation Between Tencent Music and Ihuman

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

Diversification Opportunities for Tencent Music and Ihuman

0.74

Correlation Coefficient

Tencent Music  Ihuman

Poor diversification

The 3 months correlation between Tencent and Ihuman is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Ihuman Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ihuman Inc 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 Ihuman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ihuman Inc has no effect on the direction of Tencent Music i.e., Tencent Music and Ihuman go up and down completely randomly.

Pair Corralation between Tencent Music and Ihuman

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 0.89 times more return on investment than Ihuman. However, Tencent Music Entertainment is 1.12 times less risky than Ihuman. It trades about 0.15 of its potential returns per unit of risk. Ihuman Inc is currently generating about 0.06 per unit of risk. If you would invest  975.00  in Tencent Music Entertainment on September 11, 2024 and sell it today you would earn a total of  341.00  from holding Tencent Music Entertainment or generate 34.97% 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.  Ihuman Inc

Tencent Music Entert

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 11 (%) 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.

Ihuman Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ihuman Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Ihuman demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Music and Ihuman

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

The idea behind Tencent Music Entertainment and Ihuman Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.