Correlation Between Tencent Music and MediaAlpha

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

Diversification Opportunities for Tencent Music and MediaAlpha

0.24

Correlation Coefficient

Tencent Music  MediaAlpha

Modest diversification

The 3 months correlation between Tencent and MediaAlpha is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and MediaAlpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MediaAlpha 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 MediaAlpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MediaAlpha has no effect on the direction of Tencent Music i.e., Tencent Music and MediaAlpha go up and down completely randomly.

Pair Corralation between Tencent Music and MediaAlpha

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 0.82 times more return on investment than MediaAlpha. However, Tencent Music Entertainment is 1.22 times less risky than MediaAlpha. It trades about 0.12 of its potential returns per unit of risk. MediaAlpha is currently generating about -0.14 per unit of risk. If you would invest  1,178  in Tencent Music Entertainment on November 29, 2024 and sell it today you would earn a total of  115.00  from holding Tencent Music Entertainment or generate 9.76% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  MediaAlpha

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 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.

MediaAlpha

Risk-Adjusted Performance

Very Weak

Over the last 90 days MediaAlpha has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tencent Music and MediaAlpha

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

The idea behind Tencent Music Entertainment and MediaAlpha 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.