Correlation Between Vanguard Small-cap and Tencent Holdings

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

By analyzing existing cross correlation between Vanguard Small Cap Growth and Tencent Holdings, you can compare the effects of market volatilities on Vanguard Small-cap 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 Vanguard Small-cap with a short position of Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small-cap and Tencent Holdings.

Diversification Opportunities for Vanguard Small-cap and Tencent Holdings

0.26

Correlation Coefficient

Vanguard Small-cap  Tencent Holdings

Modest diversification

The 3 months correlation between Vanguard and Tencent is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Growth and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings and Vanguard Small-cap 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 Vanguard Small Cap Growth 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 Vanguard Small-cap i.e., Vanguard Small-cap and Tencent Holdings go up and down completely randomly.

Pair Corralation between Vanguard Small-cap and Tencent Holdings

Assuming the 90 days horizon Vanguard Small-cap is expected to generate 3.15 times less return on investment than Tencent Holdings. But when comparing it to its historical volatility, Vanguard Small Cap Growth is 1.48 times less risky than Tencent Holdings. It trades about 0.03 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,649  in Tencent Holdings on January 24, 2024 and sell it today you would earn a total of  243.00  from holding Tencent Holdings or generate 6.66% return on investment over 90 days.

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

Vanguard Small Cap Growth  vs.  Tencent Holdings

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tencent Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Vanguard Small-cap and Tencent Holdings

The main advantage of trading using opposite Vanguard Small-cap and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Small-cap 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.

The idea behind Vanguard Small Cap Growth 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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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.