Correlation Between Tencent Holdings and SEEK

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

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

Diversification Opportunities for Tencent Holdings and SEEK

0.08

Correlation Coefficient

Tencent Holdings  SEEK

Significant diversification

The 3 months correlation between Tencent and SEEK is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and SEEK Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEEK Limited 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 SEEK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEEK Limited has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and SEEK go up and down completely randomly.

Pair Corralation between Tencent Holdings and SEEK

Assuming the 90 days trading horizon Tencent Holdings is expected to generate 1.21 times more return on investment than SEEK. However, Tencent Holdings is 1.21 times more volatile than SEEK Limited. It trades about -0.03 of its potential returns per unit of risk. SEEK Limited is currently generating about -0.14 per unit of risk. If you would invest  5,041  in Tencent Holdings on October 22, 2024 and sell it today you would lose (238.00) from holding Tencent Holdings or give up 4.72% of portfolio value over 90 days.

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

Tencent Holdings  vs.  SEEK Limited

Tencent Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tencent Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tencent Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SEEK Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEEK Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tencent Holdings and SEEK

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

The idea behind Tencent Holdings and SEEK Limited 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.