Correlation Between YY and Tencent Music

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

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

Diversification Opportunities for YY and Tencent Music

0.06

Correlation Coefficient

YY  Tencent Music

Significant diversification

The 3 months correlation between YY and Tencent is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding YY Inc Class 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 YY 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 YY Inc Class 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 YY i.e., YY and Tencent Music go up and down completely randomly.

Pair Corralation between YY and Tencent Music

Allowing for the 90-day total investment horizon YY Inc Class is expected to generate 0.7 times more return on investment than Tencent Music. However, YY Inc Class is 1.43 times less risky than Tencent Music. It trades about 0.09 of its potential returns per unit of risk. Tencent Music Entertainment is currently generating about 0.06 per unit of risk. If you would invest  3,432  in YY Inc Class on September 3, 2024 and sell it today you would earn a total of  453.00  from holding YY Inc Class or generate 13.2% return on investment over 90 days.

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

YY Inc Class  vs.  Tencent Music Entertainment

YY Inc Class

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in YY Inc Class are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, YY showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with YY and Tencent Music

The main advantage of trading using opposite YY and Tencent Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if YY 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 YY Inc Class 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 Commodity Directory module to find actively traded commodities issued by global exchanges.