Correlation Between Tencent Holdings and DouYu International

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

Diversification Opportunities for Tencent Holdings and DouYu International

0.06

Correlation Coefficient

Tencent Holdings  DouYu International

Significant diversification

The 3 months correlation between Tencent and DouYu is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and DouYu International Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DouYu International 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 DouYu International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DouYu International has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and DouYu International go up and down completely randomly.

Pair Corralation between Tencent Holdings and DouYu International

Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 0.29 times more return on investment than DouYu International. However, Tencent Holdings Ltd is 3.46 times less risky than DouYu International. It trades about 0.14 of its potential returns per unit of risk. DouYu International Holdings is currently generating about -0.04 per unit of risk. If you would invest  5,160  in Tencent Holdings Ltd on November 28, 2024 and sell it today you would earn a total of  1,093  from holding Tencent Holdings Ltd or generate 21.18% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  DouYu International Holdings

Tencent Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Tencent Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

DouYu International

Risk-Adjusted Performance

Very Weak

Over the last 90 days DouYu International Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tencent Holdings and DouYu International

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

The idea behind Tencent Holdings Ltd and DouYu International Holdings 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.