Correlation Between New Oriental and Applied Materials
Can any of the company-specific risk be diversified away by investing in both New Oriental and Applied Materials 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 New Oriental and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Oriental Education and Applied Materials, you can compare the effects of market volatilities on New Oriental and Applied Materials 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 New Oriental with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Oriental and Applied Materials.
Diversification Opportunities for New Oriental and Applied Materials
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between New and Applied is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and New Oriental 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 New Oriental Education are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of New Oriental i.e., New Oriental and Applied Materials go up and down completely randomly.
Pair Corralation between New Oriental and Applied Materials
Assuming the 90 days trading horizon New Oriental Education is expected to generate 0.98 times more return on investment than Applied Materials. However, New Oriental Education is 1.02 times less risky than Applied Materials. It trades about 0.14 of its potential returns per unit of risk. Applied Materials is currently generating about 0.09 per unit of risk. If you would invest 68,700 in New Oriental Education on February 11, 2024 and sell it today you would earn a total of 82,800 from holding New Oriental Education or generate 120.52% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
New Oriental Education vs. Applied Materials
Performance |
Timeline |
New Oriental Education |
Applied Materials |
New Oriental and Applied Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with New Oriental and Applied Materials
The main advantage of trading using opposite New Oriental and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Oriental position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.New Oriental vs. Southwest Airlines | New Oriental vs. Cognizant Technology Solutions | New Oriental vs. Southern Copper | New Oriental vs. Steel Dynamics |
Applied Materials vs. New Oriental Education | Applied Materials vs. Verizon Communications | Applied Materials vs. McEwen Mining | Applied Materials vs. Micron Technology |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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