Correlation Between Tencent Music and SCANSOURCE

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

Diversification Opportunities for Tencent Music and SCANSOURCE

0.21

Correlation Coefficient

Tencent Music  SCANSOURCE

Modest diversification

The 3 months correlation between Tencent and SCANSOURCE is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and SCANSOURCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCANSOURCE 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 SCANSOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCANSOURCE has no effect on the direction of Tencent Music i.e., Tencent Music and SCANSOURCE go up and down completely randomly.

Pair Corralation between Tencent Music and SCANSOURCE

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.53 times more return on investment than SCANSOURCE. However, Tencent Music is 1.53 times more volatile than SCANSOURCE. It trades about 0.06 of its potential returns per unit of risk. SCANSOURCE is currently generating about 0.08 per unit of risk. If you would invest  756.00  in Tencent Music Entertainment on September 28, 2024 and sell it today you would earn a total of  364.00  from holding Tencent Music Entertainment or generate 48.15% 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.  SCANSOURCE

Tencent Music Entert

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tencent Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SCANSOURCE

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SCANSOURCE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SCANSOURCE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tencent Music and SCANSOURCE

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

The idea behind Tencent Music Entertainment and SCANSOURCE 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.