Correlation Between Baidu and Pinduoduo
Can any of the company-specific risk be diversified away by investing in both Baidu and Pinduoduo 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 Pinduoduo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Baidu Inc and Pinduoduo, you can compare the effects of market volatilities on Baidu and Pinduoduo 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 Pinduoduo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baidu and Pinduoduo.
Diversification Opportunities for Baidu and Pinduoduo
Very poor diversification
The 3 months correlation between Baidu and Pinduoduo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Pinduoduo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinduoduo 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 Pinduoduo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinduoduo has no effect on the direction of Baidu i.e., Baidu and Pinduoduo go up and down completely randomly.
Pair Corralation between Baidu and Pinduoduo
Assuming the 90 days horizon Baidu Inc is expected to under-perform the Pinduoduo. But the stock apears to be less risky and, when comparing its historical volatility, Baidu Inc is 1.56 times less risky than Pinduoduo. The stock trades about -0.04 of its potential returns per unit of risk. The Pinduoduo is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 6,620 in Pinduoduo on August 31, 2024 and sell it today you would earn a total of 2,800 from holding Pinduoduo or generate 42.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Baidu Inc vs. Pinduoduo
Performance |
| Timeline |
| Baidu Inc |
| Pinduoduo |
Baidu and Pinduoduo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Baidu and Pinduoduo
The main advantage of trading using opposite Baidu and Pinduoduo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baidu position performs unexpectedly, Pinduoduo 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 Pinduoduo will offset losses from the drop in Pinduoduo's long position.| Baidu vs. Tencent Holdings | Baidu vs. Alibaba Group Holdings | Baidu vs. JD Inc Adr | Baidu vs. BYD Company Limited |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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