Correlation Between Tencent Music and TREE
Can any of the company-specific risk be diversified away by investing in both Tencent Music and TREE 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 TREE 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 TREECOM, you can compare the effects of market volatilities on Tencent Music and TREE 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 TREE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and TREE.
Diversification Opportunities for Tencent Music and TREE
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Tencent and TREE is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and TREECOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TREECOM 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 TREE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TREECOM has no effect on the direction of Tencent Music i.e., Tencent Music and TREE go up and down completely randomly.
Pair Corralation between Tencent Music and TREE
Assuming the 90 days trading horizon Tencent Music is expected to generate 1.21 times less return on investment than TREE. But when comparing it to its historical volatility, Tencent Music Entertainment is 1.48 times less risky than TREE. It trades about 0.05 of its potential returns per unit of risk. TREECOM is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,495 in TREECOM on December 4, 2024 and sell it today you would earn a total of 1,177 from holding TREECOM or generate 47.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Tencent Music Entertainment vs. TREECOM
Performance |
| Timeline |
| Tencent Music Entert |
| TREECOM |
Tencent Music and TREE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and TREE
The main advantage of trading using opposite Tencent Music and TREE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, TREE 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 TREE will offset losses from the drop in TREE's long position.| Tencent Music vs. Commonwealth Bank of | Tencent Music vs. EEDUCATION ALBERT AB | Tencent Music vs. EMBARK EDUCATION LTD | Tencent Music vs. CAREER EDUCATION |
| TREE vs. InterContinental Hotels Group | TREE vs. MELIA HOTELS | TREE vs. DALATA HOTEL | TREE vs. FONIX MOBILE PLC |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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