Correlation Between Baidu and Spotify Technology

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

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

Diversification Opportunities for Baidu and Spotify Technology

-0.29

Correlation Coefficient

Baidu  Spotify Technology

Very good diversification

The 3 months correlation between Baidu and Spotify is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Baidu Inc and Spotify Technology SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spotify Technology 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 Spotify Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spotify Technology has no effect on the direction of Baidu i.e., Baidu and Spotify Technology go up and down completely randomly.

Pair Corralation between Baidu and Spotify Technology

Given the investment horizon of 90 days Baidu is expected to generate 6.48 times less return on investment than Spotify Technology. In addition to that, Baidu is 1.09 times more volatile than Spotify Technology SA. It trades about 0.03 of its total potential returns per unit of risk. Spotify Technology SA is currently generating about 0.21 per unit of volatility. If you would invest  16,997  in Spotify Technology SA on February 6, 2024 and sell it today you would earn a total of  12,965  from holding Spotify Technology SA or generate 76.28% 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.  Spotify Technology SA

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. In spite of comparatively unfluctuating fundamental indicators, Baidu may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Spotify Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baidu and Spotify Technology

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

The idea behind Baidu Inc and Spotify Technology SA 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.