Correlation Between Tencent Music and Warner Music

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

Diversification Opportunities for Tencent Music and Warner Music

-0.06

Correlation Coefficient

Tencent Music  Warner Music

Good diversification

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

Pair Corralation between Tencent Music and Warner Music

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 1.81 times more return on investment than Warner Music. However, Tencent Music is 1.81 times more volatile than Warner Music Group. It trades about 0.06 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.0 per unit of risk. If you would invest  832.00  in Tencent Music Entertainment on September 21, 2024 and sell it today you would earn a total of  345.00  from holding Tencent Music Entertainment or generate 41.47% 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.  Warner Music Group

Tencent Music Entert

Risk-Adjusted Performance

6 of 100

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

Warner Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Warner Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Warner Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tencent Music and Warner Music

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

The idea behind Tencent Music Entertainment and Warner Music Group 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.