Correlation Between Tencent Holdings and Edwards Lifesciences

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

Diversification Opportunities for Tencent Holdings and Edwards Lifesciences

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Tencent and Edwards is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Edwards Lifesciences Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences Corp 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 Edwards Lifesciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edwards Lifesciences Corp has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Tencent Holdings and Edwards Lifesciences

Assuming the 90 days horizon Tencent Holdings is expected to generate 1.35 times more return on investment than Edwards Lifesciences. However, Tencent Holdings is 1.35 times more volatile than Edwards Lifesciences Corp. It trades about 0.14 of its potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about 0.11 per unit of risk. If you would invest  4,461  in Tencent Holdings on December 27, 2022 and sell it today you would earn a total of  324.00  from holding Tencent Holdings or generate 7.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Tencent Holdings Ltd  vs.  Edwards Lifesciences Corp

 Performance (%) 
       Timeline  
Tencent Holdings 

Tencent Performance

10 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical indicators, Tencent Holdings showed solid returns over the last few months and may actually be approaching a breakup point.
Edwards Lifesciences Corp 

Edwards Performance

6 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Edwards Lifesciences may actually be approaching a critical reversion point that can send shares even higher in April 2023.

Tencent Holdings and Edwards Lifesciences Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tencent Holdings and Edwards Lifesciences

The main advantage of trading using opposite Tencent Holdings and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings position performs unexpectedly, Edwards Lifesciences 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 Edwards Lifesciences will offset losses from the drop in Edwards Lifesciences' long position.
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The idea behind Tencent Holdings and Edwards Lifesciences Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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