Correlation Between PROSUS NV and Tencent Holdings

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

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

Diversification Opportunities for PROSUS NV and Tencent Holdings

0.75

Correlation Coefficient

PROSUS NV  Tencent Holdings

Poor diversification

The 3 months correlation between PROSUS and Tencent is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding PROSUS NV ADR and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and PROSUS NV 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 PROSUS NV 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 PROSUS NV i.e., PROSUS NV and Tencent Holdings go up and down completely randomly.

Pair Corralation between PROSUS NV and Tencent Holdings

Assuming the 90 days horizon PROSUS NV is expected to generate 2.26 times less return on investment than Tencent Holdings. But when comparing it to its historical volatility, PROSUS NV ADR is 1.72 times less risky than Tencent Holdings. It trades about 0.14 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,901  in Tencent Holdings on September 23, 2024 and sell it today you would earn a total of  374.00  from holding Tencent Holdings or generate 7.63% return on investment over 90 days.

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

PROSUS NV ADR  vs.  Tencent Holdings

PROSUS NV ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PROSUS NV ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PROSUS NV reported solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tencent Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PROSUS NV and Tencent Holdings

The main advantage of trading using opposite PROSUS NV and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PROSUS NV 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 PROSUS NV 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.