Correlation Between Alphabet Inc and Tencent Holdings

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Can any of the company-specific risk be diversified away by investing in both Alphabet Inc 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 Alphabet Inc and Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class and Tencent Holdings, you can compare the effects of market volatilities on Alphabet Inc 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 Alphabet Inc with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet Inc and Tencent Holdings.

Diversification Opportunities for Alphabet Inc and Tencent Holdings

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alphabet and Tencent is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Alphabet Inc 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 Alphabet Inc Class 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 Alphabet Inc i.e., Alphabet Inc and Tencent Holdings go up and down completely randomly.

Pair Corralation between Alphabet Inc and Tencent Holdings

Assuming the 90 days horizon Alphabet Inc Class is expected to generate 0.61 times more return on investment than Tencent Holdings. However, Alphabet Inc Class is 1.64 times less risky than Tencent Holdings. It trades about 0.02 of its potential returns per unit of risk. Tencent Holdings is currently generating about -0.03 per unit of risk. If you would invest  8,874  in Alphabet Inc Class on September 2, 2022 and sell it today you would earn a total of  1,225  from holding Alphabet Inc Class or generate 13.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

Alphabet Inc Class  vs.  Tencent Holdings

 Performance (%) 
       Timeline  
Alphabet Class 
Alphabet Performance
0 of 100
Over the last 90 days Alphabet Inc Class has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady technical and fundamental indicators, Alphabet Inc is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Alphabet Price Channel

Tencent Holdings 
Tencent Performance
0 of 100
Over the last 90 days Tencent Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Tencent Price Channel

Alphabet Inc and Tencent Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alphabet Inc and Tencent Holdings

The main advantage of trading using opposite Alphabet Inc and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet Inc 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.
Alphabet Inc vs. Alcoa Corp
The idea behind Alphabet Inc Class and Tencent Holdings 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.
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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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