Correlation Between Baidu and Tencent Holdings
Can any of the company-specific risk be diversified away by investing in both Baidu and Tencent Holdings 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 Tencent Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Baidu Inc and Tencent Holdings, you can compare the effects of market volatilities on Baidu and Tencent Holdings 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 Tencent Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baidu and Tencent Holdings.
Diversification Opportunities for Baidu and Tencent Holdings
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Baidu and Tencent is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings 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 Tencent Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Holdings has no effect on the direction of Baidu i.e., Baidu and Tencent Holdings go up and down completely randomly.
Pair Corralation between Baidu and Tencent Holdings
Assuming the 90 days horizon Baidu is expected to generate 2.02 times less return on investment than Tencent Holdings. In addition to that, Baidu is 2.27 times more volatile than Tencent Holdings. It trades about 0.01 of its total potential returns per unit of risk. Tencent Holdings is currently generating about 0.05 per unit of volatility. If you would invest 4,060 in Tencent Holdings on August 24, 2024 and sell it today you would earn a total of 1,075 from holding Tencent Holdings or generate 26.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Baidu Inc vs. Tencent Holdings
Performance |
| Timeline |
| Baidu Inc |
| Tencent Holdings |
Baidu and Tencent Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Baidu and Tencent Holdings
The main advantage of trading using opposite Baidu and Tencent Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baidu position performs unexpectedly, Tencent Holdings 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 Tencent Holdings will offset losses from the drop in Tencent Holdings' long position.| Baidu vs. Prosus | Baidu vs. Kuaishou Technology | Baidu vs. Kuaishou Technology | Baidu vs. Tencent Music Entertainment |
| Tencent Holdings vs. Autohome | Tencent Holdings vs. Arena Group Holdings | Tencent Holdings vs. Golden Grail Technology | Tencent Holdings vs. Asset Entities Class |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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