Correlation Between Apple and Tencent Holdings

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

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

Diversification Opportunities for Apple and Tencent Holdings

0.4

Correlation Coefficient

Apple  Tencent Holdings

Very weak diversification

The 3 months correlation between Apple and Tencent is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Apple 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 Apple Inc 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 Apple i.e., Apple and Tencent Holdings go up and down completely randomly.

Pair Corralation between Apple and Tencent Holdings

Assuming the 90 days horizon Apple is expected to generate 1.52 times less return on investment than Tencent Holdings. But when comparing it to its historical volatility, Apple Inc is 1.86 times less risky than Tencent Holdings. It trades about 0.1 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,357  in Tencent Holdings on September 1, 2024 and sell it today you would earn a total of  506.00  from holding Tencent Holdings or generate 11.61% return on investment over 90 days.

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

Apple Inc  vs.  Tencent Holdings

Apple Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Tencent Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Tencent Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and Tencent Holdings

The main advantage of trading using opposite Apple and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc and Tencent Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.