Correlation Between Tencent Holdings and TuanChe ADR

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

Diversification Opportunities for Tencent Holdings and TuanChe ADR

0.56

Correlation Coefficient

Tencent Holdings  TuanChe ADR

Very weak diversification

The 3 months correlation between Tencent and TuanChe is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and TuanChe ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TuanChe ADR 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 TuanChe ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TuanChe ADR has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and TuanChe ADR go up and down completely randomly.

Pair Corralation between Tencent Holdings and TuanChe ADR

Assuming the 90 days horizon Tencent Holdings is expected to generate 18.44 times less return on investment than TuanChe ADR. But when comparing it to its historical volatility, Tencent Holdings Ltd is 4.27 times less risky than TuanChe ADR. It trades about 0.03 of its potential returns per unit of risk. TuanChe ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  78.00  in TuanChe ADR on September 18, 2024 and sell it today you would earn a total of  13.47  from holding TuanChe ADR or generate 17.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Tencent Holdings Ltd  vs.  TuanChe ADR

Tencent Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TuanChe ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TuanChe ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tencent Holdings and TuanChe ADR

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

The idea behind Tencent Holdings Ltd and TuanChe ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.