Correlation Between New Oriental and Chegg

Can any of the company-specific risk be diversified away by investing in both New Oriental and Chegg 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 Chegg 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 Chegg Inc, you can compare the effects of market volatilities on New Oriental and Chegg 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 Chegg. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Oriental and Chegg.

Diversification Opportunities for New Oriental and Chegg

-0.55

Correlation Coefficient

New Oriental  Chegg

Excellent diversification

The 3 months correlation between New and Chegg is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Chegg Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chegg Inc 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 Chegg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chegg Inc has no effect on the direction of New Oriental i.e., New Oriental and Chegg go up and down completely randomly.

Pair Corralation between New Oriental and Chegg

Considering the 90-day investment horizon New Oriental Education is expected to generate 0.72 times more return on investment than Chegg. However, New Oriental Education is 1.39 times less risky than Chegg. It trades about -0.2 of its potential returns per unit of risk. Chegg Inc is currently generating about -0.23 per unit of risk. If you would invest  9,415  in New Oriental Education on January 20, 2024 and sell it today you would lose (726.00) from holding New Oriental Education or give up 7.71% of portfolio value over 90 days.

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

New Oriental Education  vs.  Chegg Inc

New Oriental Education

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 12 (%) 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.

Chegg Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chegg Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with New Oriental and Chegg

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

The idea behind New Oriental Education and Chegg Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.