Correlation Between Tencent Holdings and IQIYI

Can any of the company-specific risk be diversified away by investing in both Tencent Holdings and IQIYI 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 IQIYI 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 iQIYI Inc, you can compare the effects of market volatilities on Tencent Holdings and IQIYI 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 IQIYI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and IQIYI.

Diversification Opportunities for Tencent Holdings and IQIYI

0.82

Correlation Coefficient

Tencent Holdings  IQIYI

Very poor diversification

The 3 months correlation between Tencent and IQIYI is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and iQIYI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iQIYI 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 Ltd are associated (or correlated) with IQIYI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iQIYI Inc has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and IQIYI go up and down completely randomly.

Pair Corralation between Tencent Holdings and IQIYI

Assuming the 90 days horizon Tencent Holdings is expected to generate 1.17 times less return on investment than IQIYI. But when comparing it to its historical volatility, Tencent Holdings Ltd is 1.7 times less risky than IQIYI. It trades about 0.35 of its potential returns per unit of risk. iQIYI Inc is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  429.00  in iQIYI Inc on January 30, 2024 and sell it today you would earn a total of  70.00  from holding iQIYI Inc or generate 16.32% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  iQIYI Inc

Tencent Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 17 (%) 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.

iQIYI Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iQIYI Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, IQIYI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and IQIYI

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

The idea behind Tencent Holdings Ltd and iQIYI 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.