Correlation Between New Oriental and Masco

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

Diversification Opportunities for New Oriental and Masco

-0.55

Correlation Coefficient

New Oriental  Masco

Excellent diversification

The 3 months correlation between New and Masco is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco 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 Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of New Oriental i.e., New Oriental and Masco go up and down completely randomly.

Pair Corralation between New Oriental and Masco

Assuming the 90 days trading horizon New Oriental Education is expected to generate 37.94 times more return on investment than Masco. However, New Oriental is 37.94 times more volatile than Masco. It trades about 0.01 of its potential returns per unit of risk. Masco is currently generating about 0.13 per unit of risk. If you would invest  126,463  in New Oriental Education on October 22, 2024 and sell it today you would lose (1,129) from holding New Oriental Education or give up 0.89% of portfolio value over 90 days.

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

New Oriental Education  vs.  Masco

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New Oriental and Masco

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

The idea behind New Oriental Education and Masco 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.