Correlation Between Tencent Music and Telecom

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

Diversification Opportunities for Tencent Music and Telecom

-0.09

Correlation Coefficient

Tencent Music  Telecom

Good diversification

The 3 months correlation between Tencent and Telecom is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Telecom Italia Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia Capital 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 Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia Capital has no effect on the direction of Tencent Music i.e., Tencent Music and Telecom go up and down completely randomly.

Pair Corralation between Tencent Music and Telecom

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 2.06 times more return on investment than Telecom. However, Tencent Music is 2.06 times more volatile than Telecom Italia Capital. It trades about 0.04 of its potential returns per unit of risk. Telecom Italia Capital is currently generating about -0.15 per unit of risk. If you would invest  1,128  in Tencent Music Entertainment on September 25, 2024 and sell it today you would earn a total of  47.00  from holding Tencent Music Entertainment or generate 4.17% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  Telecom Italia Capital

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. In spite of rather abnormal primary indicators, Tencent Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Telecom Italia Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecom Italia Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Telecom Italia Capital investors.

Pair Trading with Tencent Music and Telecom

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

The idea behind Tencent Music Entertainment and Telecom Italia Capital 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..