Correlation Between New Oriental and Infosys

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

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

Diversification Opportunities for New Oriental and Infosys

-0.1

Correlation Coefficient

New Oriental  Infosys

Good diversification

The 3 months correlation between New and Infosys is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Infosys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Limited and New Oriental 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 New Oriental Education are associated (or correlated) with Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Limited has no effect on the direction of New Oriental i.e., New Oriental and Infosys go up and down completely randomly.

Pair Corralation between New Oriental and Infosys

Assuming the 90 days trading horizon New Oriental Education is expected to generate 1.8 times more return on investment than Infosys. However, New Oriental is 1.8 times more volatile than Infosys Limited. It trades about 0.08 of its potential returns per unit of risk. Infosys Limited is currently generating about 0.08 per unit of risk. If you would invest  2,204  in New Oriental Education on September 13, 2024 and sell it today you would earn a total of  325.00  from holding New Oriental Education or generate 14.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

New Oriental Education  vs.  Infosys Limited

New Oriental Education

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, New Oriental sustained solid returns over the last few months and may actually be approaching a breakup point.

Infosys Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Infosys may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Oriental and Infosys

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

The idea behind New Oriental Education and Infosys Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.