Correlation Between Alphabet and Tencent Holdings

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

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

Diversification Opportunities for Alphabet and Tencent Holdings

-0.13

Correlation Coefficient

Alphabet  Tencent Holdings

Good diversification

The 3 months correlation between Alphabet and Tencent is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Class A and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Alphabet 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 Alphabet Class A 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 Alphabet i.e., Alphabet and Tencent Holdings go up and down completely randomly.

Pair Corralation between Alphabet and Tencent Holdings

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 0.85 times more return on investment than Tencent Holdings. However, Alphabet Class A is 1.18 times less risky than Tencent Holdings. It trades about 0.09 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.03 per unit of risk. If you would invest  8,325  in Alphabet Class A on September 30, 2024 and sell it today you would earn a total of  10,091  from holding Alphabet Class A or generate 121.21% return on investment over 90 days.

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

Alphabet Class A  vs.  Tencent Holdings

Alphabet Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 1 (%) 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 Alphabet and Tencent Holdings

The main advantage of trading using opposite Alphabet and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Class A 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.