Are Baidu and Google Earnings Related?

Fri, Jul 15, 2011 | Jared Woodard


After the close on Thursday, even as traders were marveling at the 13% move after Google announced its earnings triumph, Baidu was also up substantially after hours (2.8%) on no apparent news. This got me wondering whether there was any steady relationship between the two – after all, Baidu is colloquially “the Google of China,” so it isn’t hard to imagine people trading the two stocks similarly.

On the day after Google reported earnings, the returns of the stocks have had the same sign for the last seven quarters, with a correlation over the last eight quarters of 0.72. I’m using after-hours prices for 7/14/11.


With respect to the relationship between earnings results, they have been slightly negatively correlated of late (-0.22), but that’s just because Baidu never misses, while Google occasionally does. The tables below show earnings estimates, actual reports, and next day return data for the last eight quarters. I just grabbed what was ready to hand; maybe more historical data would show something more interesting.

For the sake of completeness, plotted below are the relationships between the size of the earnings beat/miss and next-day returns. GOOG has a nice, obvious linear relationship with R^2 of 0.82, while BIDU is kind of a mess. But that’s what happens when n=8, isn’t it?

Earnings and price data courtesy of Livevol.

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1 Comments For This Post

  1. gappy3000 Says:

    GOOG and BIDU returns are systematically related through industry factor returns, which explain 70-80% of systematic returns of both companies. Earnings (and earning-momentum) factors do not have nearly the same effect on daily returns. The effect is visible in global factor models (Barra GEM2, Axioma AXWW2, the latter being more effective at this, since it’s using daily returns). I believe that, besides the 8 data points, the approach above wouldn’t take you anywhere.

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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