Correlation Between New Oriental and Archer Daniels

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

Diversification Opportunities for New Oriental and Archer Daniels

0.5

Correlation Coefficient

New Oriental  Archer Daniels

Very weak diversification

The 3 months correlation between New and Archer is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Archer Daniels Midland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Daniels Midland 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 Archer Daniels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Daniels Midland has no effect on the direction of New Oriental i.e., New Oriental and Archer Daniels go up and down completely randomly.

Pair Corralation between New Oriental and Archer Daniels

Assuming the 90 days trading horizon New Oriental Education is expected to generate 0.14 times more return on investment than Archer Daniels. However, New Oriental Education is 7.12 times less risky than Archer Daniels. It trades about -0.1 of its potential returns per unit of risk. Archer Daniels Midland is currently generating about -0.1 per unit of risk. If you would invest  126,800  in New Oriental Education on October 26, 2024 and sell it today you would lose (1,466) from holding New Oriental Education or give up 1.16% of portfolio value over 90 days.

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

New Oriental Education  vs.  Archer Daniels Midland

New Oriental Education

Risk-Adjusted Performance

0 of 100

Insignificant

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 fairly strong basic indicators, New Oriental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Archer Daniels Midland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary 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 Archer Daniels

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

The idea behind New Oriental Education and Archer Daniels Midland 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.