Correlation Between Four Seasons and New Oriental

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

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

Diversification Opportunities for Four Seasons and New Oriental

-0.36

Correlation Coefficient

Four Seasons  New Oriental

Very good diversification

The 3 months correlation between Four and New is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Four Seasons 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 Four Seasons 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 Four Seasons 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 Four Seasons i.e., Four Seasons and New Oriental go up and down completely randomly.

Pair Corralation between Four Seasons and New Oriental

Given the investment horizon of 90 days Four Seasons Education is expected to generate 3.06 times more return on investment than New Oriental. However, Four Seasons is 3.06 times more volatile than New Oriental Education. It trades about 0.08 of its potential returns per unit of risk. New Oriental Education is currently generating about -0.02 per unit of risk. If you would invest  801.00  in Four Seasons Education on January 25, 2024 and sell it today you would earn a total of  84.00  from holding Four Seasons Education or generate 10.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.57%
Values	Daily Returns

Four Seasons Education  vs.  New Oriental Education

Four Seasons Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Four Seasons Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Four Seasons is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

New Oriental Education

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, New Oriental may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Four Seasons and New Oriental

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

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.