Correlation Between Tencent Holdings and Alphabet

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

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

Diversification Opportunities for Tencent Holdings and Alphabet

-0.04

Correlation Coefficient

Tencent Holdings  Alphabet

Good diversification

The 3 months correlation between Tencent and Alphabet is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and Tencent Holdings 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 Holdings Ltd are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Alphabet go up and down completely randomly.

Pair Corralation between Tencent Holdings and Alphabet

Assuming the 90 days trading horizon Tencent Holdings is expected to generate 1.3 times less return on investment than Alphabet. In addition to that, Tencent Holdings is 1.5 times more volatile than Alphabet Class A. It trades about 0.1 of its total potential returns per unit of risk. Alphabet Class A is currently generating about 0.2 per unit of volatility. If you would invest  14,725  in Alphabet Class A on September 23, 2024 and sell it today you would earn a total of  3,637  from holding Alphabet Class A or generate 24.7% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  Alphabet Class A

Tencent Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd 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.

Alphabet Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and Alphabet

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

The idea behind Tencent Holdings Ltd and Alphabet 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.