Correlation Between NIKE and New Oriental

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

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

Diversification Opportunities for NIKE and New Oriental

0.3

Correlation Coefficient

NIKE  New Oriental

Weak diversification

The 3 months correlation between NIKE and New is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NIKE Inc 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 NIKE 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 NIKE Inc 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 NIKE i.e., NIKE and New Oriental go up and down completely randomly.

Pair Corralation between NIKE and New Oriental

If you would invest  147,789  in NIKE Inc on September 20, 2024 and sell it today you would earn a total of  10,014  from holding NIKE Inc or generate 6.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

NIKE Inc  vs.  New Oriental Education

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, NIKE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong basic indicators, New Oriental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NIKE and New Oriental

The main advantage of trading using opposite NIKE and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NIKE 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 NIKE Inc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.