Correlation Between New Oriental and DOW

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

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

Diversification Opportunities for New Oriental and DOW

0.09
  Correlation Coefficient
New Oriental Education
DOW

Significant diversification

The 499' months correlation between New Oriental and DOW is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of New Oriental i.e., New Oriental and DOW go up and down completely randomly.
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Pair Corralation between New Oriental and DOW

Considering the 90-day investment horizon New Oriental Education is expected to under-perform the DOW. In addition to that, New Oriental is 12.09 times more volatile than DOW. It trades about -0.16 of its total potential returns per unit of risk. DOW is currently generating about 0.07 per unit of volatility. If you would invest  3,273,120  in DOW on June 18, 2021 and sell it today you would earn a total of  182,872  from holding DOW or generate 5.59% return on investment over 90 days.
Time Period499' Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

New Oriental Education  vs.  DOW

 Performance (%) 
      Timeline 

New Oriental and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

New Oriental Education

Pair trading matchups for New Oriental

DOW

Pair trading matchups for DOW

Aave vs. DOW
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Brazilian Digital vs. DOW
TRON vs. DOW
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Ocean Protocol vs. DOW
Bitcoin vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with New Oriental and DOW

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

New Oriental Education

Pair trading matchups for New Oriental

The idea behind New Oriental Education and DOW 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.

DOW

Pair trading matchups for DOW

TRON vs. DOW
Ocean Protocol vs. DOW
Aave vs. DOW
Ethereum vs. DOW
Internet Computer vs. DOW
Bitcoin vs. DOW
MATH vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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