Correlation Between Gaotu Techedu and New Oriental

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

By analyzing existing cross correlation between Gaotu Techedu DRC and New Oriental Education, you can compare the effects of market volatilities on Gaotu Techedu and New Oriental 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 Gaotu Techedu with a short position of New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gaotu Techedu and New Oriental.

Diversification Opportunities for Gaotu Techedu and New Oriental

0.89

Correlation Coefficient

Gaotu Techedu  New Oriental

Very poor diversification

The 3 months correlation between Gaotu and New is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Gaotu Techedu DRC and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education and Gaotu Techedu 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 Gaotu Techedu DRC are associated (or correlated) with New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Gaotu Techedu i.e., Gaotu Techedu and New Oriental go up and down completely randomly.

Pair Corralation between Gaotu Techedu and New Oriental

Given the investment horizon of 90 days Gaotu Techedu DRC is expected to under-perform the New Oriental. In addition to that, Gaotu Techedu is 1.46 times more volatile than New Oriental Education. It trades about -0.03 of its total potential returns per unit of risk. New Oriental Education is currently generating about 0.1 per unit of volatility. If you would invest  5,597  in New Oriental Education on September 18, 2024 and sell it today you would earn a total of  335.00  from holding New Oriental Education or generate 5.99% return on investment over 90 days.

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

Gaotu Techedu DRC  vs.  New Oriental Education

Gaotu Techedu DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gaotu Techedu DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gaotu Techedu is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, New Oriental is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Gaotu Techedu and New Oriental

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

The idea behind Gaotu Techedu DRC and New Oriental Education 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.