Correlation Between Naspers and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both Naspers 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 Naspers and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Naspers Ltd ADR and Tencent Holdings, you can compare the effects of market volatilities on Naspers 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 Naspers with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naspers and Tencent Holdings.
Diversification Opportunities for Naspers and Tencent Holdings
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Naspers and Tencent is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Naspers Ltd ADR and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Naspers 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 Naspers Ltd ADR 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 Naspers i.e., Naspers and Tencent Holdings go up and down completely randomly.
Pair Corralation between Naspers and Tencent Holdings
Assuming the 90 days horizon Naspers Ltd ADR is expected to generate 1.04 times more return on investment than Tencent Holdings. However, Naspers is 1.04 times more volatile than Tencent Holdings. It trades about 0.05 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.04 per unit of risk. If you would invest 3,066 in Naspers Ltd ADR on August 24, 2024 and sell it today you would earn a total of 546.00 from holding Naspers Ltd ADR or generate 17.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 31.92% |
| Values | Daily Returns |
Naspers Ltd ADR vs. Tencent Holdings
Performance |
| Timeline |
| Naspers Ltd ADR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tencent Holdings |
Naspers and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Naspers and Tencent Holdings
The main advantage of trading using opposite Naspers and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naspers 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 Naspers Ltd ADR 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.| Tencent Holdings vs. Autohome | Tencent Holdings vs. Arena Group Holdings | Tencent Holdings vs. Golden Grail Technology | Tencent Holdings vs. Asset Entities Class |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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