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 and Tencent Holdings Ltd, 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

0.64

Correlation Coefficient

Prosus NV  Tencent Holdings

Poor diversification

The 3 months correlation between Prosus and Tencent is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV and Tencent Holdings Ltd 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 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 1.78 times less return on investment than Tencent Holdings. But when comparing it to its historical volatility, Prosus NV is 1.3 times less risky than Tencent Holdings. It trades about 0.03 of its potential returns per unit of risk. Tencent Holdings Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,706  in Tencent Holdings Ltd on October 11, 2024 and sell it today you would earn a total of  914.00  from holding Tencent Holdings Ltd or generate 24.66% return on investment over 90 days.

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

Prosus NV  vs.  Tencent Holdings Ltd

Prosus NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prosus NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tencent Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tencent Holdings Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 and Tencent Holdings Ltd 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..