Correlation Between Tencent Holdings and Baidu
Can any of the company-specific risk be diversified away by investing in both Tencent Holdings 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 Tencent Holdings and Baidu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tencent Holdings and Baidu Inc, you can compare the effects of market volatilities on Tencent Holdings 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 Tencent Holdings with a short position of Baidu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tencent Holdings and Baidu.
Diversification Opportunities for Tencent Holdings and Baidu
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tencent and Baidu is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tencent Holdings and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Tencent Holdings 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 Tencent Holdings 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 Tencent Holdings i.e., Tencent Holdings and Baidu go up and down completely randomly.
Pair Corralation between Tencent Holdings and Baidu
Assuming the 90 days trading horizon Tencent Holdings is expected to generate 1.21 times more return on investment than Baidu. However, Tencent Holdings is 1.21 times more volatile than Baidu Inc. It trades about -0.02 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.31 per unit of risk. If you would invest 4,977 in Tencent Holdings on August 27, 2024 and sell it today you would lose (76.00) from holding Tencent Holdings or give up 1.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tencent Holdings vs. Baidu Inc
Performance |
| Timeline |
| Tencent Holdings |
| Baidu Inc |
Tencent Holdings and Baidu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tencent Holdings and Baidu
The main advantage of trading using opposite Tencent Holdings and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tencent Holdings 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 Tencent Holdings 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.| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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