Correlation Between SoftBank Group and Baidu

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

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

Diversification Opportunities for SoftBank Group and Baidu

-0.23

Correlation Coefficient

SoftBank Group  Baidu

Very good diversification

The 3 months correlation between SoftBank and Baidu is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding SoftBank Group Corp and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and SoftBank Group 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 SoftBank Group Corp 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 SoftBank Group i.e., SoftBank Group and Baidu go up and down completely randomly.

Pair Corralation between SoftBank Group and Baidu

Assuming the 90 days horizon SoftBank Group Corp is expected to generate 2.79 times more return on investment than Baidu. However, SoftBank Group is 2.79 times more volatile than Baidu Inc. It trades about 0.09 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.03 per unit of risk. If you would invest  671.00  in SoftBank Group Corp on October 5, 2024 and sell it today you would earn a total of  4,959  from holding SoftBank Group Corp or generate 739.05% return on investment over 90 days.

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

SoftBank Group Corp  vs.  Baidu Inc

SoftBank Group Corp

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days SoftBank Group Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, SoftBank Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Baidu Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baidu Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SoftBank Group and Baidu

The main advantage of trading using opposite SoftBank Group and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SoftBank Group 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 SoftBank Group Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.