Correlation Between Baidu and Zhihu
Can any of the company-specific risk be diversified away by investing in both Baidu and Zhihu 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 Zhihu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Baidu Inc and Zhihu Inc ADR, you can compare the effects of market volatilities on Baidu and Zhihu 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 Zhihu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baidu and Zhihu.
Diversification Opportunities for Baidu and Zhihu
Poor diversification
The 3 months correlation between Baidu and Zhihu is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc ADR 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 Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of Baidu i.e., Baidu and Zhihu go up and down completely randomly.
Pair Corralation between Baidu and Zhihu
Assuming the 90 days horizon Baidu Inc is expected to under-perform the Zhihu. In addition to that, Baidu is 1.97 times more volatile than Zhihu Inc ADR. It trades about -0.13 of its total potential returns per unit of risk. Zhihu Inc ADR is currently generating about 0.01 per unit of volatility. If you would invest 369.00 in Zhihu Inc ADR on August 28, 2024 and sell it today you would lose (1.00) from holding Zhihu Inc ADR or give up 0.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Baidu Inc vs. Zhihu Inc ADR
Performance |
| Timeline |
| Baidu Inc |
| Zhihu Inc ADR |
Baidu and Zhihu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Baidu and Zhihu
The main advantage of trading using opposite Baidu and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baidu position performs unexpectedly, Zhihu 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 Zhihu will offset losses from the drop in Zhihu's long position.| Baidu vs. Trivago NV | Baidu vs. YY Inc Class | Baidu vs. DouYu International Holdings | Baidu vs. Tencent Music Entertainment |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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