Correlation Between Tencent Music and Locafy

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

Diversification Opportunities for Tencent Music and Locafy

0.06

Correlation Coefficient

Tencent Music  Locafy

Significant diversification

The 3 months correlation between Tencent and Locafy is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Locafy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Locafy 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 Locafy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Locafy has no effect on the direction of Tencent Music i.e., Tencent Music and Locafy go up and down completely randomly.

Pair Corralation between Tencent Music and Locafy

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 0.66 times more return on investment than Locafy. However, Tencent Music Entertainment is 1.52 times less risky than Locafy. It trades about 0.2 of its potential returns per unit of risk. Locafy is currently generating about -0.15 per unit of risk. If you would invest  1,067  in Tencent Music Entertainment on September 14, 2024 and sell it today you would earn a total of  140.00  from holding Tencent Music Entertainment or generate 13.12% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Locafy

Tencent Music Entert

Risk-Adjusted Performance

9 of 100

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 weak primary indicators, Tencent Music exhibited solid returns over the last few months and may actually be approaching a breakup point.

Locafy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Locafy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Locafy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tencent Music and Locafy

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

The idea behind Tencent Music Entertainment and Locafy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.