Correlation Between Twitter and Tencent Holdings

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

Diversification Opportunities for Twitter and Tencent Holdings

-0.02
  Correlation Coefficient

Good diversification

The 3 months correlation between Twitter and Tencent is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Twitter and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Twitter 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 Twitter 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 Twitter i.e., Twitter and Tencent Holdings go up and down completely randomly.

Pair Corralation between Twitter and Tencent Holdings

Given the investment horizon of 90 days Twitter is expected to generate 0.98 times more return on investment than Tencent Holdings. However, Twitter is 1.02 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  5,144  in Twitter on September 2, 2022 and sell it today you would earn a total of  226.00  from holding Twitter or generate 4.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.56%
ValuesDaily Returns

Twitter  vs.  Tencent Holdings

 Performance (%) 
       Timeline  
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 unsteady basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.
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 and Tencent Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Twitter and Tencent Holdings

The main advantage of trading using opposite Twitter and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twitter 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.
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The idea behind Twitter 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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