Correlation Between Tencent Holdings and Moodys

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

Diversification Opportunities for Tencent Holdings and Moodys

-0.08

Correlation Coefficient

Tencent Holdings  Moodys

Good diversification

The 3 months correlation between Tencent and Moodys is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Moodys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moodys 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 Moodys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moodys has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Moodys go up and down completely randomly.

Pair Corralation between Tencent Holdings and Moodys

Assuming the 90 days horizon Tencent Holdings is expected to generate 2.04 times less return on investment than Moodys. In addition to that, Tencent Holdings is 1.45 times more volatile than Moodys. It trades about 0.01 of its total potential returns per unit of risk. Moodys is currently generating about 0.04 per unit of volatility. If you would invest  28,028  in Moodys on January 27, 2024 and sell it today you would earn a total of  9,490  from holding Moodys or generate 33.86% return on investment over 90 days.

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

Tencent Holdings Ltd  vs.  Moodys

Tencent Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 13 (%) 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.

Moodys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moodys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Moodys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tencent Holdings and Moodys

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

The idea behind Tencent Holdings Ltd and Moodys 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.