Correlation Between NAVER Corp and Tencent Holdings

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

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

Diversification Opportunities for NAVER Corp and Tencent Holdings

0.73

Correlation Coefficient

NAVER Corp  Tencent Holdings

Poor diversification

The 3 months correlation between NAVER and Tencent is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding NAVER Corp and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and NAVER Corp 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 NAVER Corp 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 NAVER Corp i.e., NAVER Corp and Tencent Holdings go up and down completely randomly.

Pair Corralation between NAVER Corp and Tencent Holdings

Assuming the 90 days horizon NAVER Corp is expected to generate 36.63 times less return on investment than Tencent Holdings. But when comparing it to its historical volatility, NAVER Corp is 35.61 times less risky than Tencent Holdings. It trades about 0.13 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,331  in Tencent Holdings on December 21, 2024 and sell it today you would earn a total of  1,294  from holding Tencent Holdings or generate 24.27% return on investment over 90 days.

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

NAVER Corp  vs.  Tencent Holdings

NAVER Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NAVER Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, NAVER Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 NAVER Corp and Tencent Holdings

The main advantage of trading using opposite NAVER Corp and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAVER Corp 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 NAVER Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.