Correlation Between Homeland Resources and Tencent Holdings

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

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

Diversification Opportunities for Homeland Resources and Tencent Holdings

-0.5

Correlation Coefficient

Homeland Resources  Tencent Holdings

Very good diversification

The 3 months correlation between Homeland and Tencent is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Homeland Resources and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Homeland Resources 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 Homeland Resources 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 Homeland Resources i.e., Homeland Resources and Tencent Holdings go up and down completely randomly.

Pair Corralation between Homeland Resources and Tencent Holdings

Given the investment horizon of 90 days Homeland Resources is not expected to generate positive returns. Moreover, Homeland Resources is 6.12 times more volatile than Tencent Holdings. It trades away all of its potential returns to assume current level of volatility. Tencent Holdings is currently generating about 0.11 per unit of risk. If you would invest  5,385  in Tencent Holdings on December 29, 2024 and sell it today you would earn a total of  1,053  from holding Tencent Holdings or generate 19.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Homeland Resources  vs.  Tencent Holdings

Homeland Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Homeland Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Homeland Resources is not utilizing all of its potentials. The recent stock price disturbance, 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 Homeland Resources and Tencent Holdings

The main advantage of trading using opposite Homeland Resources and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Homeland Resources 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 Homeland Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.