Correlation Between Tencent Holdings and YY

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

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

Diversification Opportunities for Tencent Holdings and YY

0.5

Correlation Coefficient

Tencent Holdings  YY

Very weak diversification

The 3 months correlation between Tencent and YY is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and YY Inc Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YY Inc Class 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 YY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YY Inc Class has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and YY go up and down completely randomly.

Pair Corralation between Tencent Holdings and YY

Assuming the 90 days horizon Tencent Holdings is expected to generate 1.01 times more return on investment than YY. However, Tencent Holdings is 1.01 times more volatile than YY Inc Class. It trades about 0.12 of its potential returns per unit of risk. YY Inc Class is currently generating about 0.02 per unit of risk. If you would invest  5,366  in Tencent Holdings on December 27, 2024 and sell it today you would earn a total of  1,174  from holding Tencent Holdings or generate 21.88% return on investment over 90 days.

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

Tencent Holdings  vs.  YY Inc Class

Tencent Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 9 (%) 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.

YY Inc Class

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in YY Inc Class are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, YY is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tencent Holdings and YY

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

The idea behind Tencent Holdings and YY Inc Class 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.