Correlation Between Yelp and Baidu

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Can any of the company-specific risk be diversified away by investing in both Yelp 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 Yelp and Baidu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yelp Inc and Baidu Inc, you can compare the effects of market volatilities on Yelp 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 Yelp with a short position of Baidu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yelp and Baidu.

Diversification Opportunities for Yelp and Baidu

0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between Yelp and Baidu is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Yelp Inc and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Yelp 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 Yelp Inc 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 Yelp i.e., Yelp and Baidu go up and down completely randomly.

Pair Corralation between Yelp and Baidu

Given the investment horizon of 90 days Yelp Inc is expected to under-perform the Baidu. But the stock apears to be less risky and, when comparing its historical volatility, Yelp Inc is 1.48 times less risky than Baidu. The stock trades about -0.03 of its potential returns per unit of risk. The Baidu Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,496  in Baidu Inc on March 28, 2022 and sell it today you would earn a total of  362.00  from holding Baidu Inc or generate 24.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Yelp Inc  vs.  Baidu Inc

 Performance (%) 
      Timeline 
Yelp Inc 
Yelp Performance
0 of 100
Over the last 90 days Yelp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.

Yelp Price Channel

Baidu Inc 
Baidu Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in July 2022.

Baidu Price Channel

Yelp and Baidu Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Yelp and Baidu

The main advantage of trading using opposite Yelp and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yelp 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.

Yelp Inc

Pair trading matchups for Yelp

The idea behind Yelp Inc 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 Inc

Pair trading matchups for Baidu

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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