Correlation Between New Oriental and Legacy Education

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

Diversification Opportunities for New Oriental and Legacy Education

0.29

Correlation Coefficient

New Oriental  Legacy Education

Modest diversification

The 3 months correlation between New and Legacy is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Legacy Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Education 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 Legacy Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Education has no effect on the direction of New Oriental i.e., New Oriental and Legacy Education go up and down completely randomly.

Pair Corralation between New Oriental and Legacy Education

Considering the 90-day investment horizon New Oriental Education is expected to under-perform the Legacy Education. But the stock apears to be less risky and, when comparing its historical volatility, New Oriental Education is 1.11 times less risky than Legacy Education. The stock trades about -0.09 of its potential returns per unit of risk. The Legacy Education is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Legacy Education on December 27, 2024 and sell it today you would lose (120.00) from holding Legacy Education or give up 14.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

New Oriental Education  vs.  Legacy Education

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.

Legacy Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days Legacy Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with New Oriental and Legacy Education

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

The idea behind New Oriental Education and Legacy Education 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.