Correlation Between JD and Tencent Holdings

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

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

Diversification Opportunities for JD and Tencent Holdings

0.76

Correlation Coefficient

JD  Tencent Holdings

Poor diversification

The 3 months correlation between JD and Tencent is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding JD Inc Adr and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and JD 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 JD Inc Adr are associated (or correlated) with Tencent Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Holdings has no effect on the direction of JD i.e., JD and Tencent Holdings go up and down completely randomly.

Pair Corralation between JD and Tencent Holdings

Assuming the 90 days trading horizon JD Inc Adr is expected to generate 1.53 times more return on investment than Tencent Holdings. However, JD is 1.53 times more volatile than Tencent Holdings. It trades about 0.1 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.06 per unit of risk. If you would invest  2,400  in JD Inc Adr on September 29, 2024 and sell it today you would earn a total of  1,080  from holding JD Inc Adr or generate 45.0% return on investment over 90 days.

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

JD Inc Adr  vs.  Tencent Holdings

JD Inc Adr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Inc Adr has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tencent Holdings

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with JD and Tencent Holdings

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

The idea behind JD Inc Adr and Tencent Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.