Correlation Between Tencent Holdings and Media Sentiment

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

Diversification Opportunities for Tencent Holdings and Media Sentiment

0.44

Correlation Coefficient

Tencent Holdings  Media Sentiment

Very weak diversification

The 3 months correlation between Tencent and Media is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings Ltd and Media Sentiment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Media Sentiment 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 Media Sentiment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Media Sentiment has no effect on the direction of Tencent Holdings i.e., Tencent Holdings and Media Sentiment go up and down completely randomly.

Pair Corralation between Tencent Holdings and Media Sentiment

Assuming the 90 days horizon Tencent Holdings is expected to generate 11.73 times less return on investment than Media Sentiment. But when comparing it to its historical volatility, Tencent Holdings Ltd is 5.54 times less risky than Media Sentiment. It trades about 0.05 of its potential returns per unit of risk. Media Sentiment is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Media Sentiment on September 1, 2024 and sell it today you would earn a total of  3.50  from holding Media Sentiment or generate 58.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Tencent Holdings Ltd  vs.  Media Sentiment

Tencent Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Media Sentiment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Media Sentiment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, Media Sentiment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tencent Holdings and Media Sentiment

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

The idea behind Tencent Holdings Ltd and Media Sentiment 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.