Correlation Between CHINA HUARONG and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG 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 CHINA HUARONG and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and Tencent Holdings, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Tencent Holdings.
Diversification Opportunities for CHINA HUARONG and Tencent Holdings
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CHINA and Tencent is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and Tencent Holdings go up and down completely randomly.
Pair Corralation between CHINA HUARONG and Tencent Holdings
Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to under-perform the Tencent Holdings. In addition to that, CHINA HUARONG is 8.2 times more volatile than Tencent Holdings. It trades about -0.03 of its total potential returns per unit of risk. Tencent Holdings is currently generating about 0.08 per unit of volatility. If you would invest 4,901 in Tencent Holdings on September 15, 2024 and sell it today you would earn a total of 129.00 from holding Tencent Holdings or generate 2.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CHINA HUARONG ENERHD 50 vs. Tencent Holdings
Performance |
| Timeline |
| CHINA HUARONG ENERHD |
| Tencent Holdings |
CHINA HUARONG and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHINA HUARONG and Tencent Holdings
The main advantage of trading using opposite CHINA HUARONG and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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.| CHINA HUARONG vs. Alibaba Group Holding | CHINA HUARONG vs. ConocoPhillips | CHINA HUARONG vs. Superior Plus Corp | CHINA HUARONG vs. Origin Agritech |
| 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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