Correlation Between Zalando SE and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both Zalando SE 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 Zalando SE and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zalando SE and Tencent Holdings, you can compare the effects of market volatilities on Zalando SE 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 Zalando SE with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zalando SE and Tencent Holdings.
Diversification Opportunities for Zalando SE and Tencent Holdings
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Zalando and Tencent is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Zalando SE and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Zalando SE 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 Zalando SE 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 Zalando SE i.e., Zalando SE and Tencent Holdings go up and down completely randomly.
Pair Corralation between Zalando SE and Tencent Holdings
Assuming the 90 days trading horizon Zalando SE is expected to generate 1.17 times more return on investment than Tencent Holdings. However, Zalando SE is 1.17 times more volatile than Tencent Holdings. It trades about 0.11 of its potential returns per unit of risk. Tencent Holdings is currently generating about -0.02 per unit of risk. If you would invest 2,806 in Zalando SE on September 3, 2024 and sell it today you would earn a total of 136.00 from holding Zalando SE or generate 4.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zalando SE vs. Tencent Holdings
Performance |
| Timeline |
| Zalando SE |
| Tencent Holdings |
Zalando SE and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zalando SE and Tencent Holdings
The main advantage of trading using opposite Zalando SE and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zalando SE 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.| Zalando SE vs. Amazon Inc | Zalando SE vs. Alibaba Group Holdings | Zalando SE vs. JD Inc | Zalando SE vs. Superior Plus Corp |
| 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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