Correlation Between Tencent Music and Ribbon Communications

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

Diversification Opportunities for Tencent Music and Ribbon Communications

0.38

Correlation Coefficient

Tencent Music  Ribbon Communications

Weak diversification

The 3 months correlation between Tencent and Ribbon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Tencent Music i.e., Tencent Music and Ribbon Communications go up and down completely randomly.

Pair Corralation between Tencent Music and Ribbon Communications

Assuming the 90 days trading horizon Tencent Music is expected to generate 1.78 times less return on investment than Ribbon Communications. In addition to that, Tencent Music is 1.33 times more volatile than Ribbon Communications. It trades about 0.08 of its total potential returns per unit of risk. Ribbon Communications is currently generating about 0.18 per unit of volatility. If you would invest  272.00  in Ribbon Communications on September 5, 2024 and sell it today you would earn a total of  96.00  from holding Ribbon Communications or generate 35.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Tencent Music Entertainment  vs.  Ribbon Communications

Tencent Music Entert

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tencent Music reported solid returns over the last few months and may actually be approaching a breakup point.

Ribbon Communications

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Music and Ribbon Communications

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

The idea behind Tencent Music Entertainment and Ribbon Communications 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.