Correlation Between Graham Holdings and TAL Education

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

By analyzing existing cross correlation between Graham Holdings Co and TAL Education Group, you can compare the effects of market volatilities on Graham Holdings and TAL Education 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 Graham Holdings with a short position of TAL Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Graham Holdings and TAL Education.

Diversification Opportunities for Graham Holdings and TAL Education

-0.41

Correlation Coefficient

Graham Holdings  TAL Education

Very good diversification

The 3 months correlation between Graham and TAL is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Graham Holdings Co and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group and Graham Holdings 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 Graham Holdings Co are associated (or correlated) with TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of Graham Holdings i.e., Graham Holdings and TAL Education go up and down completely randomly.

Pair Corralation between Graham Holdings and TAL Education

Considering the 90-day investment horizon Graham Holdings Co is expected to under-perform the TAL Education. But the stock apears to be less risky and, when comparing its historical volatility, Graham Holdings Co is 2.69 times less risky than TAL Education. The stock trades about -0.18 of its potential returns per unit of risk. The TAL Education Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,156  in TAL Education Group on January 31, 2024 and sell it today you would earn a total of  48.00  from holding TAL Education Group or generate 4.15% return on investment over 90 days.

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

Graham Holdings Co  vs.  TAL Education Group

Graham Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Graham Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Graham Holdings is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

TAL Education Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, TAL Education disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Graham Holdings and TAL Education

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

The idea behind Graham Holdings Co and TAL Education Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.