Correlation Between Tencent Holdings and Spotify Technology
Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and Spotify Technology 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 Spotify Technology 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 Spotify Technology SA, you can compare the effects of market volatilities on Tencent Holdings and Spotify Technology 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 Spotify Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and Spotify Technology.
Diversification Opportunities for Tencent Holdings and Spotify Technology
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Tencent and Spotify is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology 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 Spotify Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spotify Technology has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Spotify Technology go up and down completely randomly.
Pair Corralation between Tencent Holdings and Spotify Technology
Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 0.64 times more return on investment than Spotify Technology. However, Tencent Holdings Ltd is 1.56 times less risky than Spotify Technology. It trades about 0.11 of its potential returns per unit of risk. Spotify Technology SA is currently generating about -0.07 per unit of risk. If you would invest 6,161 in Tencent Holdings Ltd on December 30, 2024 and sell it today you would earn a total of 344.00 from holding Tencent Holdings Ltd or generate 5.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Holdings Ltd vs. Spotify Technology SA
Performance |
| Timeline |
| Tencent Holdings |
| Spotify Technology |
Tencent Holdings and Spotify Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Holdings and Spotify Technology
The main advantage of trading using opposite Tencent Holdings and Spotify Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Spotify Technology 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 Spotify Technology will offset losses from the drop in Spotify Technology's long position.| Tencent Holdings vs. Twilio Inc | ||
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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