Correlation Between Spotify Technology and Baidu

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

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

Diversification Opportunities for Spotify Technology and Baidu

0.48

Correlation Coefficient

Spotify Technology  Baidu

Very weak diversification

The 3 months correlation between Spotify and Baidu is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Spotify Technology SA and Baidu Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baidu Inc and Spotify Technology 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 Spotify Technology SA 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 Spotify Technology i.e., Spotify Technology and Baidu go up and down completely randomly.

Pair Corralation between Spotify Technology and Baidu

Given the investment horizon of 90 days Spotify Technology SA is expected to generate 0.64 times more return on investment than Baidu. However, Spotify Technology SA is 1.55 times less risky than Baidu. It trades about 0.36 of its potential returns per unit of risk. Baidu Inc is currently generating about -0.28 per unit of risk. If you would invest  37,250  in Spotify Technology SA on August 15, 2024 and sell it today you would earn a total of  4,689  from holding Spotify Technology SA or generate 12.59% return on investment over 90 days.

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

Spotify Technology SA  vs.  Baidu Inc

Spotify Technology

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spotify Technology SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Spotify Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Baidu Inc

Risk-Adjusted Performance

0 of 100

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 Spotify Technology and Baidu

The main advantage of trading using opposite Spotify Technology and Baidu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spotify Technology 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 Spotify Technology SA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.