Correlation Between TAL Education and Cogna Educacao

Can any of the company-specific risk be diversified away by investing in both TAL Education and Cogna Educacao 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 Cogna Educacao 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 Cogna Educacao SA, you can compare the effects of market volatilities on TAL Education and Cogna Educacao 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 Cogna Educacao. Check out your portfolio center. Please also check ongoing floating volatility patterns of TAL Education and Cogna Educacao.

Diversification Opportunities for TAL Education and Cogna Educacao

-0.42

Correlation Coefficient

TAL Education  Cogna Educacao

Very good diversification

The 3 months correlation between TAL and Cogna is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group and Cogna Educacao SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogna Educacao SA 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 Cogna Educacao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogna Educacao SA has no effect on the direction of TAL Education i.e., TAL Education and Cogna Educacao go up and down completely randomly.

Pair Corralation between TAL Education and Cogna Educacao

Considering the 90-day investment horizon TAL Education Group is expected to generate 0.75 times more return on investment than Cogna Educacao. However, TAL Education Group is 1.33 times less risky than Cogna Educacao. It trades about -0.01 of its potential returns per unit of risk. Cogna Educacao SA is currently generating about -0.06 per unit of risk. If you would invest  1,143  in TAL Education Group on September 1, 2024 and sell it today you would lose (150.00) from holding TAL Education Group or give up 13.12% of portfolio value over 90 days.

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

TAL Education Group  vs.  Cogna Educacao SA

TAL Education Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, TAL Education disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cogna Educacao SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with TAL Education and Cogna Educacao

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

The idea behind TAL Education Group and Cogna Educacao SA 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.