Correlation Between Gaotu Techedu and Lincoln Educational

Can any of the company-specific risk be diversified away by investing in both Gaotu Techedu and Lincoln Educational 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 Gaotu Techedu and Lincoln Educational into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gaotu Techedu DRC and Lincoln Educational Services, you can compare the effects of market volatilities on Gaotu Techedu and Lincoln Educational 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 Gaotu Techedu with a short position of Lincoln Educational. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gaotu Techedu and Lincoln Educational.

Diversification Opportunities for Gaotu Techedu and Lincoln Educational

-0.82

Correlation Coefficient

Gaotu Techedu  Lincoln Educational

Pay attention - limited upside

The 3 months correlation between Gaotu and Lincoln is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Gaotu Techedu DRC and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational and Gaotu Techedu 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 Gaotu Techedu DRC are associated (or correlated) with Lincoln Educational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Educational has no effect on the direction of Gaotu Techedu i.e., Gaotu Techedu and Lincoln Educational go up and down completely randomly.

Pair Corralation between Gaotu Techedu and Lincoln Educational

Given the investment horizon of 90 days Gaotu Techedu DRC is expected to under-perform the Lincoln Educational. But the stock apears to be less risky and, when comparing its historical volatility, Gaotu Techedu DRC is 1.36 times less risky than Lincoln Educational. The stock trades about -0.57 of its potential returns per unit of risk. The Lincoln Educational Services is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  1,609  in Lincoln Educational Services on October 9, 2024 and sell it today you would lose (127.00) from holding Lincoln Educational Services or give up 7.89% of portfolio value over 90 days.

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

Gaotu Techedu DRC  vs.  Lincoln Educational Services

Gaotu Techedu DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gaotu Techedu DRC 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 comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Lincoln Educational

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Educational Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lincoln Educational exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gaotu Techedu and Lincoln Educational

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

The idea behind Gaotu Techedu DRC and Lincoln Educational Services 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.