Correlation Between Baidu and Alphabet

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

By analyzing existing cross correlation between Baidu Inc and Alphabet Class A, you can compare the effects of market volatilities on Baidu and Alphabet 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 Baidu with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baidu and Alphabet.

Diversification Opportunities for Baidu and Alphabet

-0.39

Correlation Coefficient

Baidu  Alphabet

Very good diversification

The 3 months correlation between Baidu and Alphabet is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and Baidu 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 Baidu Inc are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Baidu i.e., Baidu and Alphabet go up and down completely randomly.

Pair Corralation between Baidu and Alphabet

Assuming the 90 days horizon Baidu is expected to generate 1.85 times less return on investment than Alphabet. In addition to that, Baidu is 1.45 times more volatile than Alphabet Class A. It trades about 0.14 of its total potential returns per unit of risk. Alphabet Class A is currently generating about 0.38 per unit of volatility. If you would invest  16,100  in Alphabet Class A on September 27, 2024 and sell it today you would earn a total of  2,408  from holding Alphabet Class A or generate 14.96% return on investment over 90 days.

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

Baidu Inc  vs.  Alphabet Class A

Baidu Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baidu Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Alphabet Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baidu and Alphabet

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

The idea behind Baidu Inc and Alphabet Class A 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.