Correlation Between Promotora and New Oriental

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

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

Diversification Opportunities for Promotora and New Oriental

-0.66

Correlation Coefficient

Promotora  New Oriental

Excellent diversification

The 3 months correlation between Promotora and New is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Promotora y Operadora 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 Promotora 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 Promotora y Operadora 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 Promotora i.e., Promotora and New Oriental go up and down completely randomly.

Pair Corralation between Promotora and New Oriental

Assuming the 90 days trading horizon Promotora y Operadora is expected to generate 12.71 times more return on investment than New Oriental. However, Promotora is 12.71 times more volatile than New Oriental Education. It trades about 0.12 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  18,359  in Promotora y Operadora on November 27, 2024 and sell it today you would earn a total of  2,207  from holding Promotora y Operadora or generate 12.02% return on investment over 90 days.

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

Promotora y Operadora  vs.  New Oriental Education

Promotora y Operadora

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Promotora y Operadora are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Promotora may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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 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 Promotora and New Oriental

The main advantage of trading using opposite Promotora and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Promotora 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 Promotora y Operadora 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.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.