Correlation Between Strategic Education and Gaotu Techedu

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

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

Diversification Opportunities for Strategic Education and Gaotu Techedu

-0.74

Correlation Coefficient

Strategic Education  Gaotu Techedu

Pay attention - limited upside

The 3 months correlation between Strategic and Gaotu is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Education and Gaotu Techedu DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaotu Techedu DRC and Strategic 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 Strategic Education are associated (or correlated) with Gaotu Techedu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaotu Techedu DRC has no effect on the direction of Strategic Education i.e., Strategic Education and Gaotu Techedu go up and down completely randomly.

Pair Corralation between Strategic Education and Gaotu Techedu

Given the investment horizon of 90 days Strategic Education is expected to under-perform the Gaotu Techedu. But the stock apears to be less risky and, when comparing its historical volatility, Strategic Education is 2.28 times less risky than Gaotu Techedu. The stock trades about -0.03 of its potential returns per unit of risk. The Gaotu Techedu DRC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  216.00  in Gaotu Techedu DRC on December 29, 2024 and sell it today you would earn a total of  111.00  from holding Gaotu Techedu DRC or generate 51.39% return on investment over 90 days.

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

Strategic Education  vs.  Gaotu Techedu DRC

Strategic Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Strategic Education is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 conflicting basic indicators, Gaotu Techedu unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Education and Gaotu Techedu

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

The idea behind Strategic Education and Gaotu Techedu DRC 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 Stocks Directory module to find actively traded stocks across global markets.