Correlation Between Baidu and DouYu International

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

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

Diversification Opportunities for Baidu and DouYu International

-0.14

Correlation Coefficient

Baidu  DouYu International

Good diversification

The 3 months correlation between Baidu and DouYu is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and DouYu International Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DouYu International 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 DouYu International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DouYu International has no effect on the direction of Baidu i.e., Baidu and DouYu International go up and down completely randomly.

Pair Corralation between Baidu and DouYu International

Assuming the 90 days horizon Baidu Inc is expected to generate 0.73 times more return on investment than DouYu International. However, Baidu Inc is 1.36 times less risky than DouYu International. It trades about 0.04 of its potential returns per unit of risk. DouYu International Holdings is currently generating about -0.01 per unit of risk. If you would invest  1,218  in Baidu Inc on December 28, 2024 and sell it today you would earn a total of  27.00  from holding Baidu Inc or generate 2.22% return on investment over 90 days.

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

Baidu Inc  vs.  DouYu International Holdings

Baidu Inc

Risk-Adjusted Performance

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 fundamental indicators, Baidu reported solid returns over the last few months and may actually be approaching a breakup point.

DouYu International

Risk-Adjusted Performance

Very Weak

Over the last 90 days DouYu International Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, DouYu International 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 DouYu International

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

The idea behind Baidu Inc and DouYu International 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.