Correlation Between Twilio and Tencent Holdings

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

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

Diversification Opportunities for Twilio and Tencent Holdings

0.11

Correlation Coefficient

Twilio  Tencent Holdings

Average diversification

The 3 months correlation between Twilio and Tencent is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Twilio Inc and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Twilio 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 Twilio Inc 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 Twilio i.e., Twilio and Tencent Holdings go up and down completely randomly.

Pair Corralation between Twilio and Tencent Holdings

Given the investment horizon of 90 days Twilio Inc is expected to generate 0.91 times more return on investment than Tencent Holdings. However, Twilio Inc is 1.1 times less risky than Tencent Holdings. It trades about 0.36 of its potential returns per unit of risk. Tencent Holdings Ltd is currently generating about 0.05 per unit of risk. If you would invest  6,120  in Twilio Inc on September 1, 2024 and sell it today you would earn a total of  4,334  from holding Twilio Inc or generate 70.82% return on investment over 90 days.

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

Twilio Inc  vs.  Tencent Holdings Ltd

Twilio Inc

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Twilio Inc are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Twilio displayed solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 4 (%) 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 December 2024.

Pair Trading with Twilio and Tencent Holdings

The main advantage of trading using opposite Twilio and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twilio 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 Twilio Inc and Tencent Holdings Ltd 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.