Correlation Between AIRBNB INC and Tencent Holdings

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

By analyzing existing cross correlation between AIRBNB INC DL 01 and Tencent Holdings Ltd, you can compare the effects of market volatilities on AIRBNB INC 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 AIRBNB INC with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIRBNB INC and Tencent Holdings.

Diversification Opportunities for AIRBNB INC and Tencent Holdings

-0.3

Correlation Coefficient

AIRBNB INC  Tencent Holdings

Very good diversification

The 3 months correlation between AIRBNB and Tencent is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding AIRBNB INC DL 01 and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and AIRBNB INC 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 AIRBNB INC DL 01 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 AIRBNB INC i.e., AIRBNB INC and Tencent Holdings go up and down completely randomly.

Pair Corralation between AIRBNB INC and Tencent Holdings

Assuming the 90 days horizon AIRBNB INC DL 01 is expected to under-perform the Tencent Holdings. But the stock apears to be less risky and, when comparing its historical volatility, AIRBNB INC DL 01 is 1.77 times less risky than Tencent Holdings. The stock trades about -0.21 of its potential returns per unit of risk. The Tencent Holdings Ltd is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,800  in Tencent Holdings Ltd on September 24, 2024 and sell it today you would earn a total of  500.00  from holding Tencent Holdings Ltd or generate 10.42% return on investment over 90 days.

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

AIRBNB INC DL 01  vs.  Tencent Holdings Ltd

AIRBNB INC DL

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AIRBNB INC DL 01 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AIRBNB INC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tencent Holdings

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AIRBNB INC and Tencent Holdings

The main advantage of trading using opposite AIRBNB INC and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIRBNB INC 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 AIRBNB INC DL 01 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.