Correlation Between TAL Education and ITOCHU

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

By analyzing existing cross correlation between TAL Education Group and ITOCHU, you can compare the effects of market volatilities on TAL Education and ITOCHU 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 TAL Education with a short position of ITOCHU. Check out your portfolio center. Please also check ongoing floating volatility patterns of TAL Education and ITOCHU.

Diversification Opportunities for TAL Education and ITOCHU

0.06

Correlation Coefficient

TAL Education  ITOCHU

Significant diversification

The 3 months correlation between TAL and ITOCHU is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and TAL Education 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 TAL Education Group are associated (or correlated) with ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of TAL Education i.e., TAL Education and ITOCHU go up and down completely randomly.

Pair Corralation between TAL Education and ITOCHU

Assuming the 90 days trading horizon TAL Education Group is expected to under-perform the ITOCHU. In addition to that, TAL Education is 1.91 times more volatile than ITOCHU. It trades about -0.03 of its total potential returns per unit of risk. ITOCHU is currently generating about -0.03 per unit of volatility. If you would invest  4,577  in ITOCHU on October 24, 2024 and sell it today you would lose (154.00) from holding ITOCHU or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

TAL Education Group  vs.  ITOCHU

TAL Education Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TAL Education Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, TAL Education is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ITOCHU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ITOCHU is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TAL Education and ITOCHU

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

The idea behind TAL Education Group and ITOCHU 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.