Correlation Between TAL Education and Gaotu Techedu

Can any of the company-specific risk be diversified away by investing in both TAL 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 TAL 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 TAL Education Group and Gaotu Techedu DRC, you can compare the effects of market volatilities on TAL 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 TAL Education with a short position of Gaotu Techedu. Check out your portfolio center. Please also check ongoing floating volatility patterns of TAL Education and Gaotu Techedu.

Diversification Opportunities for TAL Education and Gaotu Techedu

0.69

Correlation Coefficient

TAL Education  Gaotu Techedu

Poor diversification

The 3 months correlation between TAL and Gaotu is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group 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 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 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 TAL Education i.e., TAL Education and Gaotu Techedu go up and down completely randomly.

Pair Corralation between TAL Education and Gaotu Techedu

Considering the 90-day investment horizon TAL Education is expected to generate 1.37 times less return on investment than Gaotu Techedu. But when comparing it to its historical volatility, TAL Education Group is 1.4 times less risky than Gaotu Techedu. It trades about 0.15 of its potential returns per unit of risk. Gaotu Techedu DRC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  216.00  in Gaotu Techedu DRC on December 28, 2024 and sell it today you would earn a total of  119.00  from holding Gaotu Techedu DRC or generate 55.09% return on investment over 90 days.

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

TAL Education Group  vs.  Gaotu Techedu DRC

TAL Education Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 12 (%) 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.

Gaotu Techedu DRC

Risk-Adjusted Performance

OK

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 TAL Education and Gaotu Techedu

The main advantage of trading using opposite TAL Education and Gaotu Techedu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TAL 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 TAL Education Group 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.