Correlation Between Tencent Music and NETGEAR

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

Diversification Opportunities for Tencent Music and NETGEAR

TencentNETGEARDiversified AwayTencentNETGEARDiversified Away100%
-0.2
  Correlation Coefficient

Good diversification

The 3 months correlation between Tencent and NETGEAR is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR 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 NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Tencent Music i.e., Tencent Music and NETGEAR go up and down completely randomly.

Pair Corralation between Tencent Music and NETGEAR

Considering the 90-day investment horizon Tencent Music Entertainment is expected to under-perform the NETGEAR. In addition to that, Tencent Music is 1.12 times more volatile than NETGEAR. It trades about -0.09 of its total potential returns per unit of risk. NETGEAR is currently generating about 0.26 per unit of volatility. If you would invest  1,930  in NETGEAR on October 4, 2024 and sell it today you would earn a total of  857.00  from holding NETGEAR or generate 44.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Tencent Music Entertainment  vs.  NETGEAR

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 010203040
JavaScript chart by amCharts 3.21.15TME NTGR
       Timeline  
Tencent Music Entert 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Tencent Music Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
JavaScript chart by amCharts 3.21.15NovDecDecJan10.51111.51212.51313.5
NETGEAR 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecDecJan20222426283032

Tencent Music and NETGEAR Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.51-3.38-2.25-1.110.01721.032.073.14.13 0.0400.0450.0500.0550.0600.0650.070
JavaScript chart by amCharts 3.21.15TME NTGR
       Returns  

Pair Trading with Tencent Music and NETGEAR

The main advantage of trading using opposite Tencent Music and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, NETGEAR 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 NETGEAR will offset losses from the drop in NETGEAR's long position.
The idea behind Tencent Music Entertainment and NETGEAR 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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