Correlation Between Tencent Holdings and ThedirectoryCom

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

Diversification Opportunities for Tencent Holdings and ThedirectoryCom

0.66

Correlation Coefficient

Tencent Holdings  ThedirectoryCom

Poor diversification

The 3 months correlation between Tencent and ThedirectoryCom is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and ThedirectoryCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ThedirectoryCom 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 ThedirectoryCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ThedirectoryCom has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and ThedirectoryCom go up and down completely randomly.

Pair Corralation between Tencent Holdings and ThedirectoryCom

Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 0.19 times more return on investment than ThedirectoryCom. However, Tencent Holdings Ltd is 5.24 times less risky than ThedirectoryCom. It trades about -0.01 of its potential returns per unit of risk. ThedirectoryCom is currently generating about -0.13 per unit of risk. If you would invest  5,540  in Tencent Holdings Ltd on September 29, 2024 and sell it today you would lose (180.00) from holding Tencent Holdings Ltd or give up 3.25% of portfolio value over 90 days.

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

Tencent Holdings Ltd  vs.  ThedirectoryCom

Tencent Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tencent Holdings Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Tencent Holdings is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ThedirectoryCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ThedirectoryCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Tencent Holdings and ThedirectoryCom

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

The idea behind Tencent Holdings Ltd and ThedirectoryCom 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.