Correlation Between Groupon and Baidu

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

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

Diversification Opportunities for Groupon and Baidu

-0.19

Correlation Coefficient

Groupon  Baidu

Good diversification

The 3 months correlation between Groupon and Baidu is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Groupon and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Groupon 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 Groupon are associated (or correlated) with Baidu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baidu Inc has no effect on the direction of Groupon i.e., Groupon and Baidu go up and down completely randomly.

Pair Corralation between Groupon and Baidu

Given the investment horizon of 90 days Groupon is expected to generate 2.17 times more return on investment than Baidu. However, Groupon is 2.17 times more volatile than Baidu Inc. It trades about 0.01 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.03 per unit of risk. If you would invest  1,155  in Groupon on September 4, 2024 and sell it today you would lose (204.00) from holding Groupon or give up 17.66% of portfolio value over 90 days.

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

Groupon  vs.  Baidu Inc

Groupon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Groupon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Baidu Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Groupon and Baidu

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

The idea behind Groupon and Baidu 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.