Correlation Between Tencent Holdings and Hello

Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and Hello 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 Hello into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tencent Holdings Ltd and Hello Group, you can compare the effects of market volatilities on Tencent Holdings and Hello 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 Hello. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and Hello.

Diversification Opportunities for Tencent Holdings and Hello

0.01

Correlation Coefficient

Tencent Holdings  Hello

Significant diversification

The 3 months correlation between Tencent and Hello is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Hello Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hello Group 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 Ltd are associated (or correlated) with Hello. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hello Group has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Hello go up and down completely randomly.

Pair Corralation between Tencent Holdings and Hello

Assuming the 90 days horizon Tencent Holdings Ltd is expected to generate 1.16 times more return on investment than Hello. However, Tencent Holdings is 1.16 times more volatile than Hello Group. It trades about 0.36 of its potential returns per unit of risk. Hello Group is currently generating about 0.3 per unit of risk. If you would invest  3,960  in Tencent Holdings Ltd on February 5, 2024 and sell it today you would earn a total of  754.00  from holding Tencent Holdings Ltd or generate 19.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Tencent Holdings Ltd  vs.  Hello Group

Tencent Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Tencent Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Hello Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hello Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Hello displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and Hello

The main advantage of trading using opposite Tencent Holdings and Hello positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Hello 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 Hello will offset losses from the drop in Hello's long position.

The idea behind Tencent Holdings Ltd and Hello Group 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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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.