Correlation Between Masco and New Oriental

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

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

Diversification Opportunities for Masco and New Oriental

-0.54

Correlation Coefficient

Masco  New Oriental

Excellent diversification

The 3 months correlation between Masco and New is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Masco and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education and Masco 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 Masco are associated (or correlated) with New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Masco i.e., Masco and New Oriental go up and down completely randomly.

Pair Corralation between Masco and New Oriental

Assuming the 90 days trading horizon Masco is expected to generate 1.64 times more return on investment than New Oriental. However, Masco is 1.64 times more volatile than New Oriental Education. It trades about 0.13 of its potential returns per unit of risk. New Oriental Education is currently generating about -0.13 per unit of risk. If you would invest  114,362  in Masco on December 21, 2024 and sell it today you would earn a total of  41,548  from holding Masco or generate 36.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Masco  vs.  New Oriental Education

Masco

Risk-Adjusted Performance

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 weak basic indicators, Masco showed solid returns over the last few months and may actually be approaching a breakup point.

New Oriental Education

Risk-Adjusted Performance

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Masco and New Oriental

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

The idea behind Masco and New Oriental Education 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.