Correlation Between Tencent Music and Stepstone

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

Diversification Opportunities for Tencent Music and Stepstone

0.44

Correlation Coefficient

Tencent Music  Stepstone

Very weak diversification

The 3 months correlation between Tencent and Stepstone is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group 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 Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of Tencent Music i.e., Tencent Music and Stepstone go up and down completely randomly.

Pair Corralation between Tencent Music and Stepstone

Considering the 90-day investment horizon Tencent Music is expected to generate 1.61 times less return on investment than Stepstone. In addition to that, Tencent Music is 1.63 times more volatile than Stepstone Group. It trades about 0.06 of its total potential returns per unit of risk. Stepstone Group is currently generating about 0.16 per unit of volatility. If you would invest  5,379  in Stepstone Group on September 1, 2024 and sell it today you would earn a total of  1,210  from holding Stepstone Group or generate 22.49% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Stepstone Group

Tencent Music Entert

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Tencent Music exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stepstone Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Music and Stepstone

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

The idea behind Tencent Music Entertainment and Stepstone Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.