Correlation Between New Oriental and Ke Holdings

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

Diversification Opportunities for New Oriental and Ke Holdings

0.42

Correlation Coefficient

New Oriental  Ke Holdings

Very weak diversification

The 3 months correlation between New and BEKE is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Ke Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ke Holdings 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 Ke Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ke Holdings has no effect on the direction of New Oriental i.e., New Oriental and Ke Holdings go up and down completely randomly.

Pair Corralation between New Oriental and Ke Holdings

Considering the 90-day investment horizon New Oriental Education is expected to generate 0.95 times more return on investment than Ke Holdings. However, New Oriental Education is 1.05 times less risky than Ke Holdings. It trades about 0.05 of its potential returns per unit of risk. Ke Holdings is currently generating about 0.04 per unit of risk. If you would invest  3,570  in New Oriental Education on September 19, 2024 and sell it today you would earn a total of  2,366  from holding New Oriental Education or generate 66.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

New Oriental Education  vs.  Ke Holdings

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. In spite of comparatively stable fundamental indicators, New Oriental is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Ke Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ke Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward-looking signals, Ke Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Oriental and Ke Holdings

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

The idea behind New Oriental Education and Ke Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.