Correlation Between Baidu and Tencent Holdings

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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

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Baidu and Tencent is 0.71. 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

Given the investment horizon of 90 days Baidu Inc is expected to generate 1.33 times more return on investment than Tencent Holdings. However, Baidu is 1.33 times more volatile than Tencent Holdings. It trades about 0.29 of its potential returns per unit of risk. Tencent Holdings is currently generating about 0.2 per unit of risk. If you would invest  11,510  in Baidu Inc on October 30, 2022 and sell it today you would earn a total of  2,394  from holding Baidu Inc or generate 20.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy20.0%
ValuesDaily Returns

Baidu Inc  vs.  Tencent Holdings

 Performance (%) 
       Timeline  
Baidu Inc 
Baidu Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Baidu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Baidu Price Channel

Tencent Holdings 
Tencent Performance
0 of 100
Over the last 90 days Tencent Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, Tencent Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.
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The idea behind Baidu Inc and Tencent Holdings 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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