Correlation Between Tencent Music and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both Tencent Music and Sterling Construction 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 Sterling Construction 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 Sterling Construction, you can compare the effects of market volatilities on Tencent Music and Sterling Construction 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 Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Sterling Construction.
Diversification Opportunities for Tencent Music and Sterling Construction
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Tencent and Sterling is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Tencent Music i.e., Tencent Music and Sterling Construction go up and down completely randomly.
Pair Corralation between Tencent Music and Sterling Construction
Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 0.35 times more return on investment than Sterling Construction. However, Tencent Music Entertainment is 2.82 times less risky than Sterling Construction. It trades about 0.17 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.09 per unit of risk. If you would invest 1,080 in Tencent Music Entertainment on November 4, 2024 and sell it today you would earn a total of 90.00 from holding Tencent Music Entertainment or generate 8.33% 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. Sterling Construction
Performance |
| Timeline |
| Tencent Music Entert |
| Sterling Construction |
Tencent Music and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and Sterling Construction
The main advantage of trading using opposite Tencent Music and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Sterling Construction 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 Sterling Construction will offset losses from the drop in Sterling Construction's long position.| Tencent Music vs. Grupo Carso SAB | Tencent Music vs. INTER CARS SA | Tencent Music vs. GEELY AUTOMOBILE | Tencent Music vs. CarsalesCom |
| Sterling Construction vs. GOODYEAR T RUBBER | Sterling Construction vs. Applied Materials | Sterling Construction vs. SANOK RUBBER ZY | Sterling Construction vs. VULCAN MATERIALS |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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