Correlation Between Tencent Holdings and TrueCar

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

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

Diversification Opportunities for Tencent Holdings and TrueCar

-0.87

Correlation Coefficient

Tencent Holdings  TrueCar

Pay attention - limited upside

The 3 months correlation between Tencent and TrueCar is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and TrueCar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TrueCar 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 TrueCar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TrueCar has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and TrueCar go up and down completely randomly.

Pair Corralation between Tencent Holdings and TrueCar

Assuming the 90 days horizon Tencent Holdings is expected to generate 0.79 times more return on investment than TrueCar. However, Tencent Holdings is 1.27 times less risky than TrueCar. It trades about 0.11 of its potential returns per unit of risk. TrueCar is currently generating about -0.33 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Tencent Holdings  vs.  TrueCar

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.

TrueCar

Risk-Adjusted Performance

Very Weak

Over the last 90 days TrueCar 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 rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tencent Holdings and TrueCar

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

The idea behind Tencent Holdings and TrueCar 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.