Correlation Between Prosus NV and Baidu

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

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

Diversification Opportunities for Prosus NV and Baidu

0.15

Correlation Coefficient

Prosus NV  Baidu

Average diversification

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

Pair Corralation between Prosus NV and Baidu

Assuming the 90 days horizon Prosus NV is expected to generate 3.1 times less return on investment than Baidu. But when comparing it to its historical volatility, Prosus NV ADR is 3.42 times less risky than Baidu. It trades about 0.07 of its potential returns per unit of risk. Baidu Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  999.00  in Baidu Inc on December 1, 2024 and sell it today you would earn a total of  101.00  from holding Baidu Inc or generate 10.11% return on investment over 90 days.

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

Prosus NV ADR  vs.  Baidu Inc

Prosus NV ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prosus NV may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Baidu Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baidu Inc are ranked lower than 4 (%) 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.

Pair Trading with Prosus NV and Baidu

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

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.