Correlation Between Tencent Holdings and Zedge

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

Diversification Opportunities for Tencent Holdings and Zedge

0.62

Correlation Coefficient

Tencent Holdings  Zedge

Poor diversification

The 3 months correlation between Tencent and Zedge is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Zedge Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zedge Inc 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 Zedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zedge Inc has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Zedge go up and down completely randomly.

Pair Corralation between Tencent Holdings and Zedge

Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 0.4 times more return on investment than Zedge. However, Tencent Holdings Ltd is 2.49 times less risky than Zedge. It trades about -0.02 of its potential returns per unit of risk. Zedge Inc is currently generating about -0.09 per unit of risk. If you would invest  5,454  in Tencent Holdings Ltd on September 22, 2024 and sell it today you would lose (146.00) from holding Tencent Holdings Ltd or give up 2.68% 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.  Zedge Inc

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 January 2025.

Zedge Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zedge Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tencent Holdings and Zedge

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

The idea behind Tencent Holdings Ltd and Zedge Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.