Correlation Between Tencent Music and TrueCar

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

Diversification Opportunities for Tencent Music and TrueCar

-0.62

Correlation Coefficient

Tencent Music  TrueCar

Excellent diversification

The 3 months correlation between Tencent and TrueCar is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and TrueCar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TrueCar 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 TrueCar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TrueCar has no effect on the direction of Tencent Music i.e., Tencent Music and TrueCar go up and down completely randomly.

Pair Corralation between Tencent Music and TrueCar

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 0.95 times more return on investment than TrueCar. However, Tencent Music Entertainment is 1.05 times less risky than TrueCar. It trades about 0.12 of its potential returns per unit of risk. TrueCar is currently generating about -0.33 per unit of risk. If you would invest  1,134  in Tencent Music Entertainment on December 29, 2024 and sell it today you would earn a total of  304.00  from holding Tencent Music Entertainment or generate 26.81% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  TrueCar

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.

TrueCar

Risk-Adjusted Performance

Very Weak

Over the last 90 days TrueCar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tencent Music and TrueCar

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

The idea behind Tencent Music Entertainment and TrueCar 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.