Correlation Between Baidu and Prosus

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

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

Diversification Opportunities for Baidu and Prosus

0.28

Correlation Coefficient

Baidu  Prosus

Modest diversification

The 3 months correlation between Baidu and Prosus is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Prosus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus 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 Prosus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus has no effect on the direction of Baidu i.e., Baidu and Prosus go up and down completely randomly.

Pair Corralation between Baidu and Prosus

Assuming the 90 days horizon Baidu is expected to generate 2.34 times less return on investment than Prosus. In addition to that, Baidu is 2.0 times more volatile than Prosus. It trades about 0.02 of its total potential returns per unit of risk. Prosus is currently generating about 0.12 per unit of volatility. If you would invest  4,000  in Prosus on December 29, 2024 and sell it today you would earn a total of  895.00  from holding Prosus or generate 22.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Baidu Inc  vs.  Prosus

Baidu Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Prosus

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prosus reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baidu and Prosus

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

The idea behind Baidu Inc and Prosus 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 Stocks Directory module to find actively traded stocks across global markets.