Correlation Between Pinterest and Tencent Holdings

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

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

Diversification Opportunities for Pinterest and Tencent Holdings

0.67

Correlation Coefficient

Pinterest  Tencent Holdings

Poor diversification

The 3 months correlation between Pinterest and Tencent is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Pinterest and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Pinterest 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 Pinterest 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 Pinterest i.e., Pinterest and Tencent Holdings go up and down completely randomly.

Pair Corralation between Pinterest and Tencent Holdings

Given the investment horizon of 90 days Pinterest is expected to under-perform the Tencent Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Pinterest is 1.07 times less risky than Tencent Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Tencent Holdings Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,851  in Tencent Holdings Ltd on August 30, 2024 and sell it today you would earn a total of  217.00  from holding Tencent Holdings Ltd or generate 4.47% return on investment over 90 days.

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

Pinterest  vs.  Tencent Holdings Ltd

Pinterest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pinterest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Pinterest is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Tencent Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Pinterest and Tencent Holdings

The main advantage of trading using opposite Pinterest and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinterest 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 Pinterest and Tencent Holdings Ltd 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.