Correlation Between Tencent Music and EverQuote

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

Diversification Opportunities for Tencent Music and EverQuote

0.88

Correlation Coefficient

Tencent Music  EverQuote

Very poor diversification

The 3 months correlation between Tencent and EverQuote is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Music Entertainment and EverQuote Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EverQuote Class A 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 EverQuote. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EverQuote Class A has no effect on the direction of Tencent Music i.e., Tencent Music and EverQuote go up and down completely randomly.

Pair Corralation between Tencent Music and EverQuote

Considering the 90-day investment horizon Tencent Music is expected to generate 1.1 times less return on investment than EverQuote. But when comparing it to its historical volatility, Tencent Music Entertainment is 1.46 times less risky than EverQuote. It trades about 0.2 of its potential returns per unit of risk. EverQuote Class A is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,853  in EverQuote Class A on February 2, 2024 and sell it today you would earn a total of  190.00  from holding EverQuote Class A or generate 10.25% return on investment over 90 days.

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

Tencent Music Entertainment  vs.  EverQuote Class A

Tencent Music Entert

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Music Entertainment are ranked lower than 15 (%) 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.

EverQuote Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EverQuote Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, EverQuote reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Music and EverQuote

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

The idea behind Tencent Music Entertainment and EverQuote Class A 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.