Correlation Between Gaotu Techedu and Sunlands Technology

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

Diversification Opportunities for Gaotu Techedu and Sunlands Technology

-0.18

Correlation Coefficient

Gaotu Techedu  Sunlands Technology

Good diversification

The 3 months correlation between Gaotu and Sunlands is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Gaotu Techedu DRC and Sunlands Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunlands Technology 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 Sunlands Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunlands Technology has no effect on the direction of Gaotu Techedu i.e., Gaotu Techedu and Sunlands Technology go up and down completely randomly.

Pair Corralation between Gaotu Techedu and Sunlands Technology

Given the investment horizon of 90 days Gaotu Techedu DRC is expected to generate 1.2 times more return on investment than Sunlands Technology. However, Gaotu Techedu is 1.2 times more volatile than Sunlands Technology Group. It trades about 0.15 of its potential returns per unit of risk. Sunlands Technology Group is currently generating about 0.02 per unit of risk. If you would invest  216.00  in Gaotu Techedu DRC on December 29, 2024 and sell it today you would earn a total of  119.00  from holding Gaotu Techedu DRC or generate 55.09% return on investment over 90 days.

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

Gaotu Techedu DRC  vs.  Sunlands Technology Group

Gaotu Techedu DRC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gaotu Techedu DRC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Gaotu Techedu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sunlands Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sunlands Technology Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sunlands Technology is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gaotu Techedu and Sunlands Technology

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

The idea behind Gaotu Techedu DRC and Sunlands Technology Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.