Correlation Between Lizhi and Tencent Music
Can any of the company-specific risk be diversified away by investing in both Lizhi and Tencent 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 Lizhi and Tencent Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lizhi Inc and Tencent Music Entertainment, you can compare the effects of market volatilities on Lizhi and Tencent 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 Lizhi with a short position of Tencent Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lizhi and Tencent Music.
Diversification Opportunities for Lizhi and Tencent Music
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Lizhi and Tencent is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lizhi Inc and Tencent Music Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Music Entert and Lizhi 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 Lizhi Inc are associated (or correlated) with Tencent Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Music Entert has no effect on the direction of Lizhi i.e., Lizhi and Tencent Music go up and down completely randomly.
Pair Corralation between Lizhi and Tencent Music
Given the investment horizon of 90 days Lizhi Inc is expected to generate 1.93 times more return on investment than Tencent Music. However, Lizhi is 1.93 times more volatile than Tencent Music Entertainment. It trades about 0.03 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.04 per unit of risk. If you would invest 77.00 in Lizhi Inc on August 27, 2024 and sell it today you would earn a total of 3.00 from holding Lizhi Inc or generate 3.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 31.85% |
| Values | Daily Returns |
Lizhi Inc vs. Tencent Music Entertainment
Performance |
| Timeline |
| Lizhi Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tencent Music Entert |
Lizhi and Tencent Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lizhi and Tencent Music
The main advantage of trading using opposite Lizhi and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lizhi position performs unexpectedly, Tencent 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 Tencent Music will offset losses from the drop in Tencent Music's long position.The idea behind Lizhi Inc and Tencent Music Entertainment 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.| Tencent Music vs. Baidu Inc | Tencent Music vs. Twilio Inc | Tencent Music vs. Spotify Technology SA | Tencent Music vs. Weibo Corp |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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