Correlation Between Tencent Music and Citic Telecom
Can any of the company-specific risk be diversified away by investing in both Tencent Music and Citic Telecom 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 Citic Telecom 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 Citic Telecom International, you can compare the effects of market volatilities on Tencent Music and Citic Telecom 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 Citic Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Citic Telecom.
Diversification Opportunities for Tencent Music and Citic Telecom
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tencent and Citic is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Citic Telecom International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Telecom Intern 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 Citic Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Telecom Intern has no effect on the direction of Tencent Music i.e., Tencent Music and Citic Telecom go up and down completely randomly.
Pair Corralation between Tencent Music and Citic Telecom
Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.08 times more return on investment than Citic Telecom. However, Tencent Music is 1.08 times more volatile than Citic Telecom International. It trades about 0.09 of its potential returns per unit of risk. Citic Telecom International is currently generating about 0.09 per unit of risk. If you would invest 1,040 in Tencent Music Entertainment on August 25, 2024 and sell it today you would earn a total of 40.00 from holding Tencent Music Entertainment or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Tencent Music Entertainment vs. Citic Telecom International
Performance |
| Timeline |
| Tencent Music Entert |
| Citic Telecom Intern |
Tencent Music and Citic Telecom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and Citic Telecom
The main advantage of trading using opposite Tencent Music and Citic Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Citic Telecom 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 Citic Telecom will offset losses from the drop in Citic Telecom's long position.| Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc |
| Citic Telecom vs. Apple Inc | Citic Telecom vs. Apple Inc | Citic Telecom vs. Apple Inc | Citic Telecom vs. Apple Inc |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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