Correlation Between China Distance and New Oriental

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

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

Diversification Opportunities for China Distance and New Oriental

0.0

Correlation Coefficient

China Distance  New Oriental

Pay attention - limited upside

The 3 months correlation between China and New is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Distance Education 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 China Distance 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 China Distance Education 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 China Distance i.e., China Distance and New Oriental go up and down completely randomly.

Pair Corralation between China Distance and New Oriental

If you would invest (100.00) in China Distance Education on January 24, 2024 and sell it today you would earn a total of  100.00  from holding China Distance Education or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

China Distance Education  vs.  New Oriental Education

China Distance Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Distance Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, China Distance is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

New Oriental Education

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, New Oriental unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Distance and New Oriental

The main advantage of trading using opposite China Distance and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Distance 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 China Distance Education 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.