Correlation Between BW OFFSHORE and Tencent Music

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

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

Diversification Opportunities for BW OFFSHORE and Tencent Music

0.73

Correlation Coefficient

BW OFFSHORE  Tencent Music

Poor diversification

The 3 months correlation between XY81 and Tencent is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BW OFFSHORE LTD 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 BW OFFSHORE 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 BW OFFSHORE LTD 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 BW OFFSHORE i.e., BW OFFSHORE and Tencent Music go up and down completely randomly.

Pair Corralation between BW OFFSHORE and Tencent Music

Assuming the 90 days trading horizon BW OFFSHORE is expected to generate 3.54 times less return on investment than Tencent Music. But when comparing it to its historical volatility, BW OFFSHORE LTD is 1.15 times less risky than Tencent Music. It trades about 0.03 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  925.00  in Tencent Music Entertainment on September 3, 2024 and sell it today you would earn a total of  135.00  from holding Tencent Music Entertainment or generate 14.59% return on investment over 90 days.

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

BW OFFSHORE LTD  vs.  Tencent Music Entertainment

BW OFFSHORE LTD

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BW OFFSHORE LTD are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BW OFFSHORE is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 BW OFFSHORE and Tencent Music

The main advantage of trading using opposite BW OFFSHORE and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW OFFSHORE 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 BW OFFSHORE LTD 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.