Correlation Between New Oriental and Tarena International

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

Diversification Opportunities for New Oriental and Tarena International

0.68

Correlation Coefficient

New Oriental  Tarena International

Poor diversification

The 3 months correlation between New and Tarena is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Tarena International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarena International 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 Tarena International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarena International has no effect on the direction of New Oriental i.e., New Oriental and Tarena International go up and down completely randomly.

Pair Corralation between New Oriental and Tarena International

Considering the 90-day investment horizon New Oriental Education is expected to under-perform the Tarena International. But the stock apears to be less risky and, when comparing its historical volatility, New Oriental Education is 10.35 times less risky than Tarena International. The stock trades about -0.07 of its potential returns per unit of risk. The Tarena International is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  84.00  in Tarena International on December 1, 2024 and sell it today you would lose (38.00) from holding Tarena International or give up 45.24% of portfolio value over 90 days.

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

New Oriental Education  vs.  Tarena International

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.

Tarena International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tarena International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Tarena International displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Oriental and Tarena International

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

The idea behind New Oriental Education and Tarena International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.