Correlation Between SunOpta and Tencent Music

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

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

Diversification Opportunities for SunOpta and Tencent Music

-0.12

Correlation Coefficient

SunOpta  Tencent Music

Good diversification

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

Pair Corralation between SunOpta and Tencent Music

Given the investment horizon of 90 days SunOpta is expected to generate 1.3 times less return on investment than Tencent Music. But when comparing it to its historical volatility, SunOpta is 1.4 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 0.09 of returns per unit of risk over similar time horizon. If you would invest  946.00  in Tencent Music Entertainment on September 18, 2024 and sell it today you would earn a total of  184.00  from holding Tencent Music Entertainment or generate 19.45% return on investment over 90 days.

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

SunOpta  vs.  Tencent Music Entertainment

SunOpta

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SunOpta are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, SunOpta disclosed solid returns over the last few months and may actually be approaching a breakup point.

Tencent Music Entert

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Tencent Music exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SunOpta and Tencent Music

The main advantage of trading using opposite SunOpta and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SunOpta 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 SunOpta 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.