Correlation Between Tencent Music and Nishi Nippon

Can any of the company-specific risk be diversified away by investing in both Tencent Music and Nishi Nippon 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 Nishi Nippon 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 Nishi Nippon Railroad Co, you can compare the effects of market volatilities on Tencent Music and Nishi Nippon 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 Nishi Nippon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Music and Nishi Nippon.

Diversification Opportunities for Tencent Music and Nishi Nippon

0.14

Correlation Coefficient

Tencent Music  Nishi Nippon

Average diversification

The 3 months correlation between Tencent and Nishi is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Nishi Nippon Railroad Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nishi Nippon Railroad 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 Nishi Nippon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nishi Nippon Railroad has no effect on the direction of Tencent Music i.e., Tencent Music and Nishi Nippon go up and down completely randomly.

Pair Corralation between Tencent Music and Nishi Nippon

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.29 times more return on investment than Nishi Nippon. However, Tencent Music is 1.29 times more volatile than Nishi Nippon Railroad Co. It trades about 0.04 of its potential returns per unit of risk. Nishi Nippon Railroad Co is currently generating about 0.02 per unit of risk. If you would invest  760.00  in Tencent Music Entertainment on September 20, 2024 and sell it today you would earn a total of  360.00  from holding Tencent Music Entertainment or generate 47.37% 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.  Nishi Nippon Railroad Co

Tencent Music Entert

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tencent Music reported solid returns over the last few months and may actually be approaching a breakup point.

Nishi Nippon Railroad

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nishi Nippon Railroad Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Tencent Music and Nishi Nippon

The main advantage of trading using opposite Tencent Music and Nishi Nippon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Nishi Nippon 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 Nishi Nippon will offset losses from the drop in Nishi Nippon's long position.

The idea behind Tencent Music Entertainment and Nishi Nippon Railroad Co 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.