Correlation Between Zhihu and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both Zhihu 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 Zhihu and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zhihu Inc ADR and Tencent Holdings Ltd, you can compare the effects of market volatilities on Zhihu 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 Zhihu with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhihu and Tencent Holdings.
Diversification Opportunities for Zhihu and Tencent Holdings
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Zhihu and Tencent is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Tencent Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Zhihu 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 Zhihu Inc 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 Zhihu i.e., Zhihu and Tencent Holdings go up and down completely randomly.
Pair Corralation between Zhihu and Tencent Holdings
Allowing for the 90-day total investment horizon Zhihu is expected to generate 1.14 times less return on investment than Tencent Holdings. In addition to that, Zhihu is 1.46 times more volatile than Tencent Holdings Ltd. It trades about 0.04 of its total potential returns per unit of risk. Tencent Holdings Ltd is currently generating about 0.06 per unit of volatility. If you would invest 4,814 in Tencent Holdings Ltd on November 2, 2024 and sell it today you would earn a total of 628.00 from holding Tencent Holdings Ltd or generate 13.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zhihu Inc ADR vs. Tencent Holdings Ltd
Performance |
| Timeline |
| Zhihu Inc ADR |
| Tencent Holdings |
Zhihu and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zhihu and Tencent Holdings
The main advantage of trading using opposite Zhihu and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu 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 Zhihu Inc ADR and Tencent Holdings Ltd 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. Twilio Inc | Tencent Holdings vs. Snap Inc | Tencent Holdings vs. Alphabet Inc Class A | Tencent Holdings vs. Pinterest |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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