Correlation Between China Liberal and Gaotu Techedu

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

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

Diversification Opportunities for China Liberal and Gaotu Techedu

0.88

Correlation Coefficient

China Liberal  Gaotu Techedu

Very poor diversification

The 3 months correlation between China and Gaotu is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Liberal Education and Gaotu Techedu DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaotu Techedu DRC and China Liberal 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 China Liberal Education are associated (or correlated) with Gaotu Techedu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaotu Techedu DRC has no effect on the direction of China Liberal i.e., China Liberal and Gaotu Techedu go up and down completely randomly.

Pair Corralation between China Liberal and Gaotu Techedu

Given the investment horizon of 90 days China Liberal Education is expected to under-perform the Gaotu Techedu. But the stock apears to be less risky and, when comparing its historical volatility, China Liberal Education is 1.22 times less risky than Gaotu Techedu. The stock trades about -0.05 of its potential returns per unit of risk. The Gaotu Techedu DRC is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  259.00  in Gaotu Techedu DRC on September 18, 2024 and sell it today you would lose (15.00) from holding Gaotu Techedu DRC or give up 5.79% of portfolio value over 90 days.

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

China Liberal Education  vs.  Gaotu Techedu DRC

China Liberal Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Liberal Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Gaotu Techedu DRC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Liberal and Gaotu Techedu

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

The idea behind China Liberal Education and Gaotu Techedu DRC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.