Correlation Between New Oriental and Prudential Financial

Can any of the company-specific risk be diversified away by investing in both New Oriental and Prudential Financial 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 Prudential Financial 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 Prudential Financial, you can compare the effects of market volatilities on New Oriental and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Oriental and Prudential Financial.

Diversification Opportunities for New Oriental and Prudential Financial

-0.33

Correlation Coefficient

New Oriental  Prudential Financial

Very good diversification

The 3 months correlation between New and Prudential is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of New Oriental i.e., New Oriental and Prudential Financial go up and down completely randomly.

Pair Corralation between New Oriental and Prudential Financial

Assuming the 90 days trading horizon New Oriental Education is expected to generate 1.83 times more return on investment than Prudential Financial. However, New Oriental is 1.83 times more volatile than Prudential Financial. It trades about 0.1 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.41 per unit of risk. If you would invest  2,529  in New Oriental Education on October 12, 2024 and sell it today you would earn a total of  80.00  from holding New Oriental Education or generate 3.16% return on investment over 90 days.

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

New Oriental Education  vs.  Prudential Financial

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, New Oriental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with New Oriental and Prudential Financial

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

The idea behind New Oriental Education and Prudential Financial 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.