Correlation Between Tencent Holdings and Twitter

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

Diversification Opportunities for Tencent Holdings and Twitter

-0.12
  Correlation Coefficient

Good diversification

The 3 months correlation between Tencent and Twitter is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Twitter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twitter 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 Twitter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twitter has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Twitter go up and down completely randomly.

Pair Corralation between Tencent Holdings and Twitter

Assuming the 90 days horizon Tencent Holdings is expected to under-perform the Twitter. In addition to that, Tencent Holdings is 1.02 times more volatile than Twitter. It trades about -0.03 of its total potential returns per unit of risk. Twitter is currently generating about 0.02 per unit of volatility. If you would invest  4,723  in Twitter on August 31, 2022 and sell it today you would earn a total of  647.00  from holding Twitter or generate 13.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.77%
ValuesDaily Returns

Tencent Holdings  vs.  Twitter

 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 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

Twitter 
Twitter Performance
0 of 100
Over the last 90 days Twitter has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively uncertain basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings and Twitter Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Twitter

The main advantage of trading using opposite Tencent Holdings and Twitter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Twitter 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 Twitter will offset losses from the drop in Twitter's long position.
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The idea behind Tencent Holdings and Twitter 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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