Correlation Between Apple and Tencent Music

Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and Tencent Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Apple Inc and Tencent Music Entertainment, you can compare the effects of market volatilities on Apple 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 Apple with a short position of Tencent Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Tencent Music.

Diversification Opportunities for Apple and Tencent Music

0.4

Correlation Coefficient

Apple  Tencent Music

Very weak diversification

The 3 months correlation between Apple and Tencent is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Apple 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 Apple 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 Apple 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 Apple i.e., Apple and Tencent Music go up and down completely randomly.

Pair Corralation between Apple and Tencent Music

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.46 times more return on investment than Tencent Music. However, Apple Inc is 2.18 times less risky than Tencent Music. It trades about 0.1 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.04 per unit of risk. If you would invest  12,031  in Apple Inc on September 19, 2024 and sell it today you would earn a total of  12,129  from holding Apple Inc or generate 100.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Apple Inc  vs.  Tencent Music Entertainment

Apple Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Apple exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tencent Music Entert

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 8 (%) 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.

Pair Trading with Apple and Tencent Music

The main advantage of trading using opposite Apple and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple 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.

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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.