Correlation Between TAL Education and Lincoln Educational

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

Diversification Opportunities for TAL Education and Lincoln Educational

0.6

Correlation Coefficient

TAL Education  Lincoln Educational

Poor diversification

The 3 months correlation between TAL and Lincoln is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational 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 Lincoln Educational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Educational has no effect on the direction of TAL Education i.e., TAL Education and Lincoln Educational go up and down completely randomly.

Pair Corralation between TAL Education and Lincoln Educational

Considering the 90-day investment horizon TAL Education Group is expected to generate 1.26 times more return on investment than Lincoln Educational. However, TAL Education is 1.26 times more volatile than Lincoln Educational Services. It trades about 0.17 of its potential returns per unit of risk. Lincoln Educational Services is currently generating about 0.0 per unit of risk. If you would invest  975.00  in TAL Education Group on December 19, 2024 and sell it today you would earn a total of  448.00  from holding TAL Education Group or generate 45.95% 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.  Lincoln Educational Services

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 13 (%) 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.

Lincoln Educational

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lincoln Educational Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lincoln Educational is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TAL Education and Lincoln Educational

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

The idea behind TAL Education Group and Lincoln Educational Services 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.