Correlation Between Meta Platforms and Tencent Holdings

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

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

Diversification Opportunities for Meta Platforms and Tencent Holdings

-0.03

Correlation Coefficient

Meta Platforms  Tencent Holdings

Good diversification

The 3 months correlation between Meta and Tencent is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and Tencent Holdings go up and down completely randomly.

Pair Corralation between Meta Platforms and Tencent Holdings

Given the investment horizon of 90 days Meta Platforms is expected to under-perform the Tencent Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 1.5 times less risky than Tencent Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Tencent Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,385  in Tencent Holdings on December 28, 2024 and sell it today you would earn a total of  1,316  from holding Tencent Holdings or generate 24.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Meta Platforms  vs.  Tencent Holdings

Meta Platforms

Risk-Adjusted Performance

Weak

Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Meta Platforms is not utilizing all of its potentials. The current 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 10 (%) 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 Meta Platforms and Tencent Holdings

The main advantage of trading using opposite Meta Platforms and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.