Correlation Between Tencent Holdings and PT Steel

Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and PT Steel 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 PT Steel 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 PT Steel Pipe, you can compare the effects of market volatilities on Tencent Holdings and PT Steel 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 PT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and PT Steel.

Diversification Opportunities for Tencent Holdings and PT Steel

-0.19

Correlation Coefficient

Tencent Holdings  PT Steel

Good diversification

The 3 months correlation between Tencent and S08 is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe 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 PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and PT Steel go up and down completely randomly.

Pair Corralation between Tencent Holdings and PT Steel

Assuming the 90 days trading horizon Tencent Holdings Ltd is expected to generate 0.61 times more return on investment than PT Steel. However, Tencent Holdings Ltd is 1.65 times less risky than PT Steel. It trades about 0.13 of its potential returns per unit of risk. PT Steel Pipe is currently generating about 0.02 per unit of risk. If you would invest  5,300  in Tencent Holdings Ltd on December 20, 2024 and sell it today you would earn a total of  1,050  from holding Tencent Holdings Ltd or generate 19.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Tencent Holdings Ltd  vs.  PT Steel Pipe

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 10 (%) 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.

PT Steel Pipe

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Steel Pipe are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PT Steel is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tencent Holdings and PT Steel

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

The idea behind Tencent Holdings Ltd and PT Steel Pipe 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.