Correlation Between Snap and Baidu
Can any of the company-specific risk be diversified away by investing in both Snap 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 Snap and Baidu into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Snap Inc and Baidu Inc, you can compare the effects of market volatilities on Snap 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 Snap with a short position of Baidu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Snap and Baidu.
Diversification Opportunities for Snap and Baidu
Modest diversification
The 3 months correlation between Snap and Baidu is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Snap Inc and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Snap 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 Snap Inc 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 Snap i.e., Snap and Baidu go up and down completely randomly.
Pair Corralation between Snap and Baidu
Given the investment horizon of 90 days Snap Inc is expected to generate 1.68 times more return on investment than Baidu. However, Snap is 1.68 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 -0.11 per unit of risk. If you would invest 1,131 in Snap Inc on January 26, 2024 and sell it today you would lose (23.00) from holding Snap Inc or give up 2.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Snap Inc vs. Baidu Inc
Performance |
| Timeline |
| Snap Inc |
| Baidu Inc |
Snap and Baidu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Snap and Baidu
The main advantage of trading using opposite Snap and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap 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 Snap Inc 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.Check out your portfolio center.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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