Correlation Between Tencent Holdings and Trivago NV

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

Diversification Opportunities for Tencent Holdings and Trivago NV

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Tencent and Trivago is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Trivago NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trivago NV 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 Trivago NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trivago NV has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Trivago NV go up and down completely randomly.

Pair Corralation between Tencent Holdings and Trivago NV

Assuming the 90 days horizon Tencent Holdings is expected to generate 1.18 times more return on investment than Trivago NV. However, Tencent Holdings is 1.18 times more volatile than Trivago NV. It trades about 0.32 of its potential returns per unit of risk. Trivago NV is currently generating about 0.33 per unit of risk. If you would invest  2,912  in Tencent Holdings on September 3, 2022 and sell it today you would earn a total of  869.00  from holding Tencent Holdings or generate 29.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Tencent Holdings  vs.  Trivago NV

 Performance (%) 
       Timeline  
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 rather sound basic indicators, Tencent Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Tencent Price Channel

Trivago NV 
Trivago Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Trivago NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Trivago NV is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Trivago Price Channel

Tencent Holdings and Trivago NV Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Trivago NV

The main advantage of trading using opposite Tencent Holdings and Trivago NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Trivago NV 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 Trivago NV will offset losses from the drop in Trivago NV's long position.
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The idea behind Tencent Holdings and Trivago NV 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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