Correlation Between Tencent Music and STMICROELECTRONICS

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

Diversification Opportunities for Tencent Music and STMICROELECTRONICS

0.12

Correlation Coefficient

Tencent Music  STMICROELECTRONICS

Average diversification

The 3 months correlation between Tencent and STMICROELECTRONICS is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS 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 STMICROELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMICROELECTRONICS has no effect on the direction of Tencent Music i.e., Tencent Music and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Tencent Music and STMICROELECTRONICS

Assuming the 90 days trading horizon Tencent Music Entertainment is expected to generate 1.61 times more return on investment than STMICROELECTRONICS. However, Tencent Music is 1.61 times more volatile than STMICROELECTRONICS. It trades about 0.03 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about -0.09 per unit of risk. If you would invest  1,080  in Tencent Music Entertainment on September 28, 2024 and sell it today you would earn a total of  40.00  from holding Tencent Music Entertainment or generate 3.7% 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.  STMICROELECTRONICS

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.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Tencent Music and STMICROELECTRONICS

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

The idea behind Tencent Music Entertainment and STMICROELECTRONICS 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.