Correlation Between Summit Materials and Tencent Holdings

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

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

Diversification Opportunities for Summit Materials and Tencent Holdings

-0.47

Correlation Coefficient

Summit Materials  Tencent Holdings

Very good diversification

The 3 months correlation between Summit and Tencent is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and Tencent Holdings go up and down completely randomly.

Pair Corralation between Summit Materials and Tencent Holdings

Assuming the 90 days trading horizon Summit Materials is expected to generate 0.92 times more return on investment than Tencent Holdings. However, Summit Materials is 1.09 times less risky than Tencent Holdings. It trades about 0.06 of its potential returns per unit of risk. Tencent Holdings Ltd is currently generating about 0.01 per unit of risk. If you would invest  2,780  in Summit Materials on October 11, 2024 and sell it today you would earn a total of  2,140  from holding Summit Materials or generate 76.98% return on investment over 90 days.

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

Summit Materials  vs.  Tencent Holdings Ltd

Summit Materials

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 Summit Materials and Tencent Holdings

The main advantage of trading using opposite Summit Materials and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.