Correlation Between Yelp and Tencent Music
Can any of the company-specific risk be diversified away by investing in both Yelp 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 Yelp and Tencent Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yelp Inc and Tencent Music Entertainment, you can compare the effects of market volatilities on Yelp 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 Yelp with a short position of Tencent Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and Tencent Music.
Diversification Opportunities for Yelp and Tencent Music
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Yelp and Tencent is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Yelp 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 Yelp 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 Yelp 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 Yelp i.e., Yelp and Tencent Music go up and down completely randomly.
Pair Corralation between Yelp and Tencent Music
Given the investment horizon of 90 days Yelp is expected to generate 2.68 times less return on investment than Tencent Music. But when comparing it to its historical volatility, Yelp Inc is 1.65 times less risky than Tencent Music. It trades about 0.02 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 818.00 in Tencent Music Entertainment on August 27, 2024 and sell it today you would earn a total of 301.00 from holding Tencent Music Entertainment or generate 36.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yelp Inc vs. Tencent Music Entertainment
Performance |
| Timeline |
| Yelp Inc |
| Tencent Music Entert |
Yelp and Tencent Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yelp and Tencent Music
The main advantage of trading using opposite Yelp and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yelp 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 Yelp 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. Trivago NV | Tencent Music vs. Cheetah Mobile | Tencent Music vs. Comscore | Tencent Music vs. Arena Group Holdings |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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