Correlation Between Tencent Holdings and Plastic Omnium

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

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

Diversification Opportunities for Tencent Holdings and Plastic Omnium

-0.16

Correlation Coefficient

Tencent Holdings  Plastic Omnium

Good diversification

The 3 months correlation between Tencent and Plastic is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastic Omnium and Tencent Holdings 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 Tencent Holdings Ltd are associated (or correlated) with Plastic Omnium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastic Omnium has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Plastic Omnium go up and down completely randomly.

Pair Corralation between Tencent Holdings and Plastic Omnium

Assuming the 90 days trading horizon Tencent Holdings Ltd is expected to generate 0.86 times more return on investment than Plastic Omnium. However, Tencent Holdings Ltd is 1.17 times less risky than Plastic Omnium. It trades about 0.1 of its potential returns per unit of risk. Plastic Omnium is currently generating about 0.03 per unit of risk. If you would invest  5,200  in Tencent Holdings Ltd on December 22, 2024 and sell it today you would earn a total of  800.00  from holding Tencent Holdings Ltd or generate 15.38% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  Plastic Omnium

Tencent Holdings

Risk-Adjusted Performance

OK

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

Plastic Omnium

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Plastic Omnium is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tencent Holdings and Plastic Omnium

The main advantage of trading using opposite Tencent Holdings and Plastic Omnium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Plastic Omnium 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 Plastic Omnium will offset losses from the drop in Plastic Omnium's long position.

The idea behind Tencent Holdings Ltd and Plastic Omnium 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.