Correlation Between Tencent Holdings and Naspers

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

Diversification Opportunities for Tencent Holdings and Naspers

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Tencent and Naspers is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Naspers Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naspers Ltd ADR 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 Naspers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naspers Ltd ADR has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Naspers go up and down completely randomly.

Pair Corralation between Tencent Holdings and Naspers

If you would invest  3,650  in Tencent Holdings on December 29, 2023 and sell it today you would earn a total of  226.00  from holding Tencent Holdings or generate 6.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy4.55%
ValuesDaily Returns

Tencent Holdings  vs.  Naspers Ltd ADR

 Performance 
       Timeline  
Tencent Holdings 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
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. Despite nearly stable basic indicators, Tencent Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Naspers Ltd ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Naspers Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Naspers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Tencent Holdings and Naspers Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Naspers

The main advantage of trading using opposite Tencent Holdings and Naspers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Naspers 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 Naspers will offset losses from the drop in Naspers' long position.
The idea behind Tencent Holdings and Naspers Ltd ADR 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.
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 the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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