Correlation Between Tencent Music and Diageo Plc
Can any of the company-specific risk be diversified away by investing in both Tencent Music and Diageo Plc 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 Diageo Plc 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 Diageo plc, you can compare the effects of market volatilities on Tencent Music and Diageo Plc 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 Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Diageo Plc.
Diversification Opportunities for Tencent Music and Diageo Plc
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Tencent and Diageo is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Tencent Music i.e., Tencent Music and Diageo Plc go up and down completely randomly.
Pair Corralation between Tencent Music and Diageo Plc
Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 2.49 times more return on investment than Diageo Plc. However, Tencent Music is 2.49 times more volatile than Diageo plc. It trades about 0.05 of its potential returns per unit of risk. Diageo plc is currently generating about -0.04 per unit of risk. If you would invest 770.00 in Tencent Music Entertainment on September 12, 2024 and sell it today you would earn a total of 470.00 from holding Tencent Music Entertainment or generate 61.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Music Entertainment vs. Diageo plc
Performance |
| Timeline |
| Tencent Music Entert |
| Diageo plc |
Tencent Music and Diageo Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and Diageo Plc
The main advantage of trading using opposite Tencent Music and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Diageo Plc 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 Diageo Plc will offset losses from the drop in Diageo Plc's long position.| Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc | Tencent Music vs. Apple Inc |
| Diageo Plc vs. NAKED WINES PLC | Diageo Plc vs. CHINA TONTINE WINES | Diageo Plc vs. Superior Plus Corp | Diageo Plc vs. SIVERS SEMICONDUCTORS AB |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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