Correlation Between Cheetah Mobile and Tencent Holdings

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

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

Diversification Opportunities for Cheetah Mobile and Tencent Holdings

0.49

Correlation Coefficient

Cheetah Mobile  Tencent Holdings

Very weak diversification

The 3 months correlation between Cheetah and Tencent is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cheetah Mobile and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Cheetah Mobile 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 Cheetah Mobile 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 Cheetah Mobile i.e., Cheetah Mobile and Tencent Holdings go up and down completely randomly.

Pair Corralation between Cheetah Mobile and Tencent Holdings

Given the investment horizon of 90 days Cheetah Mobile is expected to under-perform the Tencent Holdings. In addition to that, Cheetah Mobile is 1.89 times more volatile than Tencent Holdings. It trades about -0.01 of its total potential returns per unit of risk. Tencent Holdings is currently generating about 0.11 per unit of volatility. If you would invest  5,143  in Tencent Holdings on December 2, 2024 and sell it today you would earn a total of  980.00  from holding Tencent Holdings or generate 19.06% return on investment over 90 days.

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

Cheetah Mobile  vs.  Tencent Holdings

Cheetah Mobile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheetah Mobile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cheetah Mobile is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Tencent Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Tencent Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheetah Mobile and Tencent Holdings

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

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.