Correlation Between Deluxe and Youdao

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

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

Diversification Opportunities for Deluxe and Youdao

0.63

Correlation Coefficient

Deluxe  Youdao

Poor diversification

The 3 months correlation between Deluxe and Youdao is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and Youdao Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youdao Inc and Deluxe 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 Deluxe are associated (or correlated) with Youdao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youdao Inc has no effect on the direction of Deluxe i.e., Deluxe and Youdao go up and down completely randomly.

Pair Corralation between Deluxe and Youdao

Considering the 90-day investment horizon Deluxe is expected to generate 0.61 times more return on investment than Youdao. However, Deluxe is 1.65 times less risky than Youdao. It trades about -0.12 of its potential returns per unit of risk. Youdao Inc is currently generating about -0.09 per unit of risk. If you would invest  2,354  in Deluxe on October 9, 2024 and sell it today you would lose (103.00) from holding Deluxe or give up 4.38% of portfolio value over 90 days.

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

Deluxe  vs.  Youdao Inc

Deluxe

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

Youdao Inc

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youdao Inc are ranked lower than 10 (%) 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.

Pair Trading with Deluxe and Youdao

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

The idea behind Deluxe and Youdao Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.