Correlation Between Tencent Holdings and Alphabet

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

Diversification Opportunities for Tencent Holdings and Alphabet

0.36

Correlation Coefficient

Tencent Holdings  Alphabet

Weak diversification

The 3 months correlation between Tencent and Alphabet is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Alphabet Inc Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Alphabet go up and down completely randomly.

Pair Corralation between Tencent Holdings and Alphabet

Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 1.79 times more return on investment than Alphabet. However, Tencent Holdings is 1.79 times more volatile than Alphabet Inc Class A. It trades about 0.05 of its potential returns per unit of risk. Alphabet Inc Class A is currently generating about 0.08 per unit of risk. If you would invest  4,814  in Tencent Holdings Ltd on September 1, 2024 and sell it today you would earn a total of  333.00  from holding Tencent Holdings Ltd or generate 6.92% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  Alphabet Inc Class A

Tencent Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 4 (%) 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.

Alphabet Class A

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Tencent Holdings and Alphabet

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

The idea behind Tencent Holdings Ltd and Alphabet Inc Class A 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.