Correlation Between Alphabet and Baidu

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

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

Diversification Opportunities for Alphabet and Baidu

0.06

Correlation Coefficient

Alphabet  Baidu

Significant diversification

The 3 months correlation between Alphabet and Baidu is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Class A and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Alphabet 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 Alphabet Class A 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 Alphabet i.e., Alphabet and Baidu go up and down completely randomly.

Pair Corralation between Alphabet and Baidu

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 0.62 times more return on investment than Baidu. However, Alphabet Class A is 1.61 times less risky than Baidu. It trades about 0.01 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.01 per unit of risk. If you would invest  15,748  in Alphabet Class A on September 1, 2024 and sell it today you would earn a total of  208.00  from holding Alphabet Class A or generate 1.32% return on investment over 90 days.

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

Alphabet Class A  vs.  Baidu Inc

Alphabet Class A

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Baidu Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Alphabet and Baidu

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

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.