Correlation Between Youdao and Gaotu Techedu

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

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

Diversification Opportunities for Youdao and Gaotu Techedu

0.46

Correlation Coefficient

Youdao  Gaotu Techedu

Very weak diversification

The 3 months correlation between Youdao and Gaotu is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Youdao Inc 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 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 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 Youdao i.e., Youdao and Gaotu Techedu go up and down completely randomly.

Pair Corralation between Youdao and Gaotu Techedu

Considering the 90-day investment horizon Youdao is expected to generate 1.88 times less return on investment than Gaotu Techedu. In addition to that, Youdao is 1.18 times more volatile than Gaotu Techedu DRC. It trades about 0.07 of its total potential returns per unit of risk. Gaotu Techedu DRC is currently generating about 0.15 per unit of volatility. If you would invest  216.00  in Gaotu Techedu DRC on December 28, 2024 and sell it today you would earn a total of  119.00  from holding Gaotu Techedu DRC or generate 55.09% return on investment over 90 days.

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

Youdao Inc  vs.  Gaotu Techedu DRC

Youdao Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Youdao Inc are ranked lower than 5 (%) 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.

Gaotu Techedu DRC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gaotu Techedu DRC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Gaotu Techedu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Youdao and Gaotu Techedu

The main advantage of trading using opposite Youdao and Gaotu Techedu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Youdao 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 Youdao Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..