Correlation Between Tencent Holdings and Meta Platforms
Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and Meta Platforms 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 Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tencent Holdings Ltd and Meta Platforms, you can compare the effects of market volatilities on Tencent Holdings and Meta Platforms 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 Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and Meta Platforms.
Diversification Opportunities for Tencent Holdings and Meta Platforms
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tencent and Meta is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Ltd are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Meta Platforms go up and down completely randomly.
Pair Corralation between Tencent Holdings and Meta Platforms
Assuming the 90 days horizon Tencent Holdings is expected to generate 3.51 times less return on investment than Meta Platforms. But when comparing it to its historical volatility, Tencent Holdings Ltd is 1.07 times less risky than Meta Platforms. It trades about 0.04 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 12,312 in Meta Platforms on August 23, 2024 and sell it today you would earn a total of 43,997 from holding Meta Platforms or generate 357.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Holdings Ltd vs. Meta Platforms
Performance |
| Timeline |
| Tencent Holdings |
| Meta Platforms |
Tencent Holdings and Meta Platforms Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Holdings and Meta Platforms
The main advantage of trading using opposite Tencent Holdings and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.| Tencent Holdings vs. Twilio Inc | Tencent Holdings vs. Snap Inc | Tencent Holdings vs. Alphabet Inc Class A | Tencent Holdings vs. Pinterest |
| Meta Platforms vs. Zillow Group Class | Meta Platforms vs. Outbrain | Meta Platforms vs. TuanChe ADR | Meta Platforms vs. Weibo Corp |
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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