Correlation Between Tencent Music and Baidu
Can any of the company-specific risk be diversified away by investing in both Tencent Music and Baidu 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 Baidu 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 Baidu Inc, you can compare the effects of market volatilities on Tencent Music and Baidu 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 Baidu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Baidu.
Diversification Opportunities for Tencent Music and Baidu
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tencent and Baidu is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc 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 Baidu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baidu Inc has no effect on the direction of Tencent Music i.e., Tencent Music and Baidu go up and down completely randomly.
Pair Corralation between Tencent Music and Baidu
Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 1.17 times more return on investment than Baidu. However, Tencent Music is 1.17 times more volatile than Baidu Inc. It trades about -0.04 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.32 per unit of risk. If you would invest 1,184 in Tencent Music Entertainment on August 27, 2024 and sell it today you would lose (31.00) from holding Tencent Music Entertainment or give up 2.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Music Entertainment vs. Baidu Inc
Performance |
| Timeline |
| Tencent Music Entert |
| Baidu Inc |
Tencent Music and Baidu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and Baidu
The main advantage of trading using opposite Tencent Music and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Baidu 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 Baidu will offset losses from the drop in Baidu's long position.| Tencent Music vs. Baidu Inc | Tencent Music vs. Twilio Inc | Tencent Music vs. Spotify Technology SA | Tencent Music vs. Weibo Corp |
| Baidu vs. Tencent Music Entertainment | Baidu vs. Twilio Inc | Baidu vs. Spotify Technology SA | Baidu 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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