Correlation Between New Oriental and Gaotu Techedu

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

Diversification Opportunities for New Oriental and Gaotu Techedu

-0.43

Correlation Coefficient

New Oriental  Gaotu Techedu

Very good diversification

The 3 months correlation between New and Gaotu is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education 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 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 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 New Oriental i.e., New Oriental and Gaotu Techedu go up and down completely randomly.

Pair Corralation between New Oriental and Gaotu Techedu

Considering the 90-day investment horizon New Oriental Education is expected to under-perform the Gaotu Techedu. But the stock apears to be less risky and, when comparing its historical volatility, New Oriental Education is 1.44 times less risky than Gaotu Techedu. The stock trades about -0.09 of its potential returns per unit of risk. The Gaotu Techedu DRC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  224.00  in Gaotu Techedu DRC on December 27, 2024 and sell it today you would earn a total of  91.00  from holding Gaotu Techedu DRC or generate 40.62% return on investment over 90 days.

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

New Oriental Education  vs.  Gaotu Techedu DRC

New Oriental Education

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Gaotu Techedu DRC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gaotu Techedu DRC are ranked lower than 9 (%) 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 New Oriental and Gaotu Techedu

The main advantage of trading using opposite New Oriental and Gaotu Techedu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Oriental 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 New Oriental Education 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.