Correlation Between Tencent Holdings and MEITUAN UNSPADR/2B

Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and MEITUAN UNSPADR/2B 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 MEITUAN UNSPADR/2B into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tencent Holdings and MEITUAN UNSPADR2B, you can compare the effects of market volatilities on Tencent Holdings and MEITUAN UNSPADR/2B 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 MEITUAN UNSPADR/2B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and MEITUAN UNSPADR/2B.

Diversification Opportunities for Tencent Holdings and MEITUAN UNSPADR/2B

0.89

Correlation Coefficient

Tencent Holdings  MEITUAN UNSPADR/2B

Very poor diversification

The 3 months correlation between Tencent and MEITUAN is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and MEITUAN UNSPADR2B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEITUAN UNSPADR/2B 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 are associated (or correlated) with MEITUAN UNSPADR/2B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEITUAN UNSPADR/2B has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and MEITUAN UNSPADR/2B go up and down completely randomly.

Pair Corralation between Tencent Holdings and MEITUAN UNSPADR/2B

Assuming the 90 days trading horizon Tencent Holdings is expected to generate 0.51 times more return on investment than MEITUAN UNSPADR/2B. However, Tencent Holdings is 1.96 times less risky than MEITUAN UNSPADR/2B. It trades about -0.02 of its potential returns per unit of risk. MEITUAN UNSPADR2B is currently generating about -0.06 per unit of risk. If you would invest  4,931  in Tencent Holdings on September 3, 2024 and sell it today you would lose (68.00) from holding Tencent Holdings or give up 1.38% of portfolio value over 90 days.

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

Tencent Holdings  vs.  MEITUAN UNSPADR2B

Tencent Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Tencent Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

MEITUAN UNSPADR/2B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MEITUAN UNSPADR2B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, MEITUAN UNSPADR/2B reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and MEITUAN UNSPADR/2B

The main advantage of trading using opposite Tencent Holdings and MEITUAN UNSPADR/2B positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, MEITUAN UNSPADR/2B 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 MEITUAN UNSPADR/2B will offset losses from the drop in MEITUAN UNSPADR/2B's long position.

The idea behind Tencent Holdings and MEITUAN UNSPADR2B 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.