Correlation Between DFS Furniture and Tencent Music

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

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

Diversification Opportunities for DFS Furniture and Tencent Music

0.71

Correlation Coefficient

DFS Furniture  Tencent Music

Poor diversification

The 3 months correlation between DFS and Tencent is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC 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 DFS Furniture 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 DFS Furniture PLC 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 DFS Furniture i.e., DFS Furniture and Tencent Music go up and down completely randomly.

Pair Corralation between DFS Furniture and Tencent Music

Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.18 times less return on investment than Tencent Music. But when comparing it to its historical volatility, DFS Furniture PLC is 1.51 times less risky than Tencent Music. It trades about 0.11 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  920.00  in Tencent Music Entertainment on August 31, 2024 and sell it today you would earn a total of  150.00  from holding Tencent Music Entertainment or generate 16.3% return on investment over 90 days.

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

DFS Furniture PLC  vs.  Tencent Music Entertainment

DFS Furniture PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DFS Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 fragile basic indicators, Tencent Music reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DFS Furniture and Tencent Music

The main advantage of trading using opposite DFS Furniture and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFS Furniture 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 DFS Furniture PLC 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 Global Correlations module to find global opportunities by holding instruments from different markets.