Correlation Between Tencent Holdings and Amazon

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

Diversification Opportunities for Tencent Holdings and Amazon

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Tencent and Amazon is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Amazon go up and down completely randomly.

Pair Corralation between Tencent Holdings and Amazon

Assuming the 90 days horizon Tencent Holdings is expected to generate 6.85 times less return on investment than Amazon. In addition to that, Tencent Holdings is 1.08 times more volatile than Amazon Inc. It trades about 0.0 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.03 per unit of volatility. If you would invest  15,112  in Amazon Inc on December 30, 2023 and sell it today you would earn a total of  2,926  from holding Amazon Inc or generate 19.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Tencent Holdings  vs.  Amazon Inc

 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.
Amazon Inc 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Tencent Holdings and Amazon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Amazon

The main advantage of trading using opposite Tencent Holdings and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.
The idea behind Tencent Holdings and Amazon Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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