Correlation Between Baidu and NetEase

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

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

Diversification Opportunities for Baidu and NetEase

0.47

Correlation Coefficient

Baidu  NetEase

Very weak diversification

The 3 months correlation between Baidu and NetEase is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Baidu i.e., Baidu and NetEase go up and down completely randomly.

Pair Corralation between Baidu and NetEase

Given the investment horizon of 90 days Baidu Inc is expected to generate 0.85 times more return on investment than NetEase. However, Baidu Inc is 1.18 times less risky than NetEase. It trades about -0.11 of its potential returns per unit of risk. NetEase is currently generating about -0.22 per unit of risk. If you would invest  10,366  in Baidu Inc on January 26, 2024 and sell it today you would lose (447.00) from holding Baidu Inc or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Baidu Inc  vs.  NetEase

Baidu Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baidu Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NetEase is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Baidu and NetEase

The main advantage of trading using opposite Baidu and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baidu position performs unexpectedly, NetEase 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 NetEase will offset losses from the drop in NetEase's long position.

The idea behind Baidu Inc and NetEase 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.