Correlation Between Tencent Holdings and Prosus NV

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

By analyzing existing cross correlation between Tencent Holdings and Prosus NV ADR, you can compare the effects of market volatilities on Tencent Holdings and Prosus NV 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 Prosus NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and Prosus NV.

Diversification Opportunities for Tencent Holdings and Prosus NV

0.96

Correlation Coefficient

Tencent Holdings  Prosus NV

Almost no diversification

The 3 months correlation between Tencent and Prosus is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Prosus NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus NV ADR 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 are associated (or correlated) with Prosus NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus NV ADR has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Prosus NV go up and down completely randomly.

Pair Corralation between Tencent Holdings and Prosus NV

Assuming the 90 days horizon Tencent Holdings is expected to generate 1.23 times more return on investment than Prosus NV. However, Tencent Holdings is 1.23 times more volatile than Prosus NV ADR. It trades about 0.11 of its potential returns per unit of risk. Prosus NV ADR is currently generating about 0.13 per unit of risk. If you would invest  5,385  in Tencent Holdings on December 29, 2024 and sell it today you would earn a total of  1,053  from holding Tencent Holdings or generate 19.55% return on investment over 90 days.

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

Tencent Holdings  vs.  Prosus NV ADR

Tencent Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Tencent Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Prosus NV ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prosus NV showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and Prosus NV

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

The idea behind Tencent Holdings and Prosus NV ADR 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 Anywhere module to track or share privately all of your investments from the convenience of any device.