Correlation Between Ke Holdings and New Oriental

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

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

Diversification Opportunities for Ke Holdings and New Oriental

0.42

Correlation Coefficient

Ke Holdings  New Oriental

Very weak diversification

The 3 months correlation between BEKE and New is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ke Holdings 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 Ke Holdings 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 Ke Holdings 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 Ke Holdings i.e., Ke Holdings and New Oriental go up and down completely randomly.

Pair Corralation between Ke Holdings and New Oriental

Given the investment horizon of 90 days Ke Holdings is expected to generate 1.2 times more return on investment than New Oriental. However, Ke Holdings is 1.2 times more volatile than New Oriental Education. It trades about 0.06 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  1,549  in Ke Holdings on September 19, 2024 and sell it today you would earn a total of  336.00  from holding Ke Holdings or generate 21.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Ke Holdings  vs.  New Oriental Education

Ke Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ke Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward-looking signals, Ke Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ke Holdings and New Oriental

The main advantage of trading using opposite Ke Holdings and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ke Holdings 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 Ke Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.