Correlation Between Tencent Music and Meta Platforms

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

Diversification Opportunities for Tencent Music and Meta Platforms

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Tencent and Meta is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Tencent Music i.e., Tencent Music and Meta Platforms go up and down completely randomly.

Pair Corralation between Tencent Music and Meta Platforms

Considering the 90-day investment horizon Tencent Music Entertainment is expected to generate 1.3 times more return on investment than Meta Platforms. However, Tencent Music is 1.3 times more volatile than Meta Platforms. It trades about 0.06 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.07 per unit of risk. If you would invest  457.00  in Tencent Music Entertainment on November 24, 2023 and sell it today you would earn a total of  572.00  from holding Tencent Music Entertainment or generate 125.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Tencent Music Entertainment  vs.  Meta Platforms

 Performance 
       Timeline  
Tencent Music Entert 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 9 (%) 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.
Meta Platforms 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Tencent Music and Meta Platforms Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Music and Meta Platforms

The main advantage of trading using opposite Tencent Music and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Music position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.
The idea behind Tencent Music Entertainment and Meta Platforms 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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