Correlation Between NetEase and Baidu

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

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

Diversification Opportunities for NetEase and Baidu

0.42

Correlation Coefficient

NetEase  Baidu

Very weak diversification

The 3 months correlation between NetEase and Baidu is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and NetEase 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 NetEase 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 NetEase i.e., NetEase and Baidu go up and down completely randomly.

Pair Corralation between NetEase and Baidu

Assuming the 90 days trading horizon NetEase is expected to generate 1.16 times less return on investment than Baidu. In addition to that, NetEase is 1.17 times more volatile than Baidu Inc. It trades about 0.03 of its total potential returns per unit of risk. Baidu Inc is currently generating about 0.05 per unit of volatility. If you would invest  164,999  in Baidu Inc on September 5, 2024 and sell it today you would earn a total of  10,101  from holding Baidu Inc or generate 6.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

NetEase  vs.  Baidu Inc

NetEase

Risk-Adjusted Performance

2 of 100

Weak

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

Baidu Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NetEase and Baidu

The main advantage of trading using opposite NetEase and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase 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 NetEase 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.