Correlation Between Talanx AG and Tencent Holdings

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

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

Diversification Opportunities for Talanx AG and Tencent Holdings

0.04

Correlation Coefficient

Talanx AG  Tencent Holdings

Significant diversification

The 3 months correlation between Talanx and Tencent is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Talanx AG 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 Talanx AG are associated (or correlated) with Tencent Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Holdings has no effect on the direction of Talanx AG i.e., Talanx AG and Tencent Holdings go up and down completely randomly.

Pair Corralation between Talanx AG and Tencent Holdings

Assuming the 90 days horizon Talanx AG is expected to generate 0.75 times more return on investment than Tencent Holdings. However, Talanx AG is 1.33 times less risky than Tencent Holdings. It trades about -0.05 of its potential returns per unit of risk. Tencent Holdings is currently generating about -0.06 per unit of risk. If you would invest  8,400  in Talanx AG on October 8, 2024 and sell it today you would lose (105.00) from holding Talanx AG or give up 1.25% of portfolio value over 90 days.

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

Talanx AG  vs.  Tencent Holdings

Talanx AG

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tencent Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tencent Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Talanx AG and Tencent Holdings

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

The idea behind Talanx AG and Tencent Holdings 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.