Correlation Between Alibaba Group and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both Alibaba Group 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 Alibaba Group and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holdings and Tencent Holdings, you can compare the effects of market volatilities on Alibaba Group 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 Alibaba Group with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Tencent Holdings.
Diversification Opportunities for Alibaba Group and Tencent Holdings
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Alibaba and Tencent is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holdings and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Alibaba Group 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 Alibaba Group Holdings 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 Alibaba Group i.e., Alibaba Group and Tencent Holdings go up and down completely randomly.
Pair Corralation between Alibaba Group and Tencent Holdings
Assuming the 90 days trading horizon Alibaba Group Holdings is expected to generate 0.75 times more return on investment than Tencent Holdings. However, Alibaba Group Holdings is 1.33 times less risky than Tencent Holdings. It trades about -0.04 of its potential returns per unit of risk. Tencent Holdings is currently generating about -0.18 per unit of risk. If you would invest 8,120 in Alibaba Group Holdings on October 20, 2024 and sell it today you would lose (120.00) from holding Alibaba Group Holdings or give up 1.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alibaba Group Holdings vs. Tencent Holdings
Performance |
| Timeline |
| Alibaba Group Holdings |
| Tencent Holdings |
Alibaba Group and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alibaba Group and Tencent Holdings
The main advantage of trading using opposite Alibaba Group and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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.| Alibaba Group vs. Tencent Holdings | Alibaba Group vs. Amazon Inc | Alibaba Group vs. Microsoft | Alibaba Group vs. Apple Inc |
| Tencent Holdings vs. BYD Company Limited | Tencent Holdings vs. Alibaba Group Holdings | Tencent Holdings vs. Xiaomi | Tencent Holdings vs. Baidu Inc |
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.
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