Correlation Between STMICROELECTRONICS and Tencent Music

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

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

Diversification Opportunities for STMICROELECTRONICS and Tencent Music

0.12

Correlation Coefficient

STMICROELECTRONICS  Tencent Music

Average diversification

The 3 months correlation between STMICROELECTRONICS and Tencent is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS 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 STMICROELECTRONICS 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 STMICROELECTRONICS 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 STMICROELECTRONICS i.e., STMICROELECTRONICS and Tencent Music go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Tencent Music

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Tencent Music. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.61 times less risky than Tencent Music. The stock trades about -0.09 of its potential returns per unit of risk. The Tencent Music Entertainment is currently generating about 0.03 of returns per unit of risk over similar time horizon. 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

STMICROELECTRONICS  vs.  Tencent Music Entertainment

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.

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.

Pair Trading with STMICROELECTRONICS and Tencent Music

The main advantage of trading using opposite STMICROELECTRONICS and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS 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 STMICROELECTRONICS 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.