Correlation Between Zhihu and Baidu

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

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

Diversification Opportunities for Zhihu and Baidu

0.65

Correlation Coefficient

Zhihu  Baidu

Poor diversification

The 3 months correlation between Zhihu and Baidu is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Zhihu Inc ADR and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Zhihu 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 Zhihu Inc 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 Zhihu i.e., Zhihu and Baidu go up and down completely randomly.

Pair Corralation between Zhihu and Baidu

Allowing for the 90-day total investment horizon Zhihu Inc ADR is expected to generate 2.16 times more return on investment than Baidu. However, Zhihu is 2.16 times more volatile than Baidu Inc. It trades about -0.02 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.12 per unit of risk. If you would invest  68.00  in Zhihu Inc ADR on January 28, 2024 and sell it today you would lose (2.00) from holding Zhihu Inc ADR or give up 2.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Zhihu Inc ADR  vs.  Baidu Inc

Zhihu Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhihu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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. In spite of comparatively stable fundamental indicators, Baidu is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Zhihu and Baidu

The main advantage of trading using opposite Zhihu and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhihu 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 Zhihu Inc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.