Correlation Between Youdao and CleanGo Innovations

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

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

Diversification Opportunities for Youdao and CleanGo Innovations

0.36

Correlation Coefficient

Youdao  CleanGo Innovations

Weak diversification

The 3 months correlation between Youdao and CleanGo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Youdao Inc and CleanGo Innovations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CleanGo Innovations and Youdao 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 Youdao Inc are associated (or correlated) with CleanGo Innovations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CleanGo Innovations has no effect on the direction of Youdao i.e., Youdao and CleanGo Innovations go up and down completely randomly.

Pair Corralation between Youdao and CleanGo Innovations

Considering the 90-day investment horizon Youdao is expected to generate 1.08 times less return on investment than CleanGo Innovations. But when comparing it to its historical volatility, Youdao Inc is 1.88 times less risky than CleanGo Innovations. It trades about 0.02 of its potential returns per unit of risk. CleanGo Innovations is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  50.00  in CleanGo Innovations on October 27, 2024 and sell it today you would lose (25.00) from holding CleanGo Innovations or give up 50.0% of portfolio value over 90 days.

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

Youdao Inc  vs.  CleanGo Innovations

Youdao Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youdao Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Youdao displayed solid returns over the last few months and may actually be approaching a breakup point.

CleanGo Innovations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CleanGo Innovations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Youdao and CleanGo Innovations

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

The idea behind Youdao Inc and CleanGo Innovations 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.