Correlation Between Ambow Education and Lixiang Education

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

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

Diversification Opportunities for Ambow Education and Lixiang Education

0.05

Correlation Coefficient

Ambow Education  Lixiang Education

Significant diversification

The 3 months correlation between Ambow and Lixiang is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ambow Education Holding and Lixiang Education Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lixiang Education Holding and Ambow Education 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 Ambow Education Holding are associated (or correlated) with Lixiang Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lixiang Education Holding has no effect on the direction of Ambow Education i.e., Ambow Education and Lixiang Education go up and down completely randomly.

Pair Corralation between Ambow Education and Lixiang Education

Given the investment horizon of 90 days Ambow Education is expected to generate 11.17 times less return on investment than Lixiang Education. But when comparing it to its historical volatility, Ambow Education Holding is 1.22 times less risky than Lixiang Education. It trades about 0.05 of its potential returns per unit of risk. Lixiang Education Holding is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Lixiang Education Holding on September 26, 2024 and sell it today you would earn a total of  287.00  from holding Lixiang Education Holding or generate 119.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ambow Education Holding  vs.  Lixiang Education Holding

Ambow Education Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ambow Education Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Ambow Education displayed solid returns over the last few months and may actually be approaching a breakup point.

Lixiang Education Holding

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lixiang Education Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Lixiang Education demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ambow Education and Lixiang Education

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

The idea behind Ambow Education Holding and Lixiang Education Holding 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.