Correlation Between Tencent Music and Fevertree Drinks
Can any of the company-specific risk be diversified away by investing in both Tencent Music and Fevertree Drinks 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 Fevertree Drinks 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 Fevertree Drinks Plc, you can compare the effects of market volatilities on Tencent Music and Fevertree Drinks 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 Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Fevertree Drinks.
Diversification Opportunities for Tencent Music and Fevertree Drinks
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Tencent and Fevertree is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Tencent Music i.e., Tencent Music and Fevertree Drinks go up and down completely randomly.
Pair Corralation between Tencent Music and Fevertree Drinks
Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 2.41 times more return on investment than Fevertree Drinks. However, Tencent Music is 2.41 times more volatile than Fevertree Drinks Plc. It trades about 0.04 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.31 per unit of risk. If you would invest 1,126 in Tencent Music Entertainment on September 3, 2024 and sell it today you would earn a total of 15.00 from holding Tencent Music Entertainment or generate 1.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Music Entertainment vs. Fevertree Drinks Plc
Performance |
| Timeline |
| Tencent Music Entert |
| Fevertree Drinks Plc |
Tencent Music and Fevertree Drinks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Music and Fevertree Drinks
The main advantage of trading using opposite Tencent Music and Fevertree Drinks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Fevertree Drinks 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 Fevertree Drinks will offset losses from the drop in Fevertree Drinks' long position.| Tencent Music vs. Baidu Inc | Tencent Music vs. Twilio Inc | Tencent Music vs. Spotify Technology SA | Tencent Music vs. Weibo Corp |
| Fevertree Drinks vs. National Beverage Corp | Fevertree Drinks vs. Celsius Holdings | Fevertree Drinks vs. Monster Beverage Corp | Fevertree Drinks vs. Coca Cola Femsa SAB |
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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