Correlation Between Tencent Music and Perion Network

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

Diversification Opportunities for Tencent Music and Perion Network

-0.33

Correlation Coefficient

Tencent Music  Perion Network

Very good diversification

The 3 months correlation between Tencent and Perion is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Perion Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perion Network 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 Perion Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perion Network has no effect on the direction of Tencent Music i.e., Tencent Music and Perion Network go up and down completely randomly.

Pair Corralation between Tencent Music and Perion Network

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 1.47 times more return on investment than Perion Network. However, Tencent Music is 1.47 times more volatile than Perion Network. It trades about 0.12 of its potential returns per unit of risk. Perion Network is currently generating about -0.01 per unit of risk. If you would invest  1,134  in Tencent Music Entertainment on December 28, 2024 and sell it today you would earn a total of  306.00  from holding Tencent Music Entertainment or generate 26.98% 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.  Perion Network

Tencent Music Entert

Risk-Adjusted Performance

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

Perion Network

Risk-Adjusted Performance

Very Weak

Over the last 90 days Perion Network has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Perion Network is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Tencent Music and Perion Network

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

The idea behind Tencent Music Entertainment and Perion Network 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..