Correlation Between Tencent Holdings and Autohome

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

Diversification Opportunities for Tencent Holdings and Autohome

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Tencent and Autohome is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Autohome in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome 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 are associated (or correlated) with Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Autohome go up and down completely randomly.

Pair Corralation between Tencent Holdings and Autohome

Assuming the 90 days horizon Tencent Holdings is expected to generate 0.85 times more return on investment than Autohome. However, Tencent Holdings is 1.18 times less risky than Autohome. It trades about -0.02 of its potential returns per unit of risk. Autohome is currently generating about -0.04 per unit of risk. If you would invest  7,222  in Tencent Holdings on September 8, 2022 and sell it today you would lose (3,329)  from holding Tencent Holdings or give up 46.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

Tencent Holdings  vs.  Autohome

 Performance (%) 
       Timeline  
Tencent Holdings 
Tencent Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Tencent Price Channel

Autohome 
Autohome Performance
0 of 100
Over the last 90 days Autohome has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Autohome Price Channel

Tencent Holdings and Autohome Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Autohome

The main advantage of trading using opposite Tencent Holdings and Autohome positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Autohome 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 Autohome will offset losses from the drop in Autohome's long position.
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The idea behind Tencent Holdings and Autohome 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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