Correlation Between TAL Education and Lixiang Education

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

Diversification Opportunities for TAL Education and Lixiang Education

-0.02

Correlation Coefficient

TAL Education  Lixiang Education

Good diversification

The 3 months correlation between TAL and Lixiang is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group and Lixiang Education Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lixiang Education Holding 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 Lixiang Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lixiang Education Holding has no effect on the direction of TAL Education i.e., TAL Education and Lixiang Education go up and down completely randomly.

Pair Corralation between TAL Education and Lixiang Education

Considering the 90-day investment horizon TAL Education is expected to generate 1.49 times less return on investment than Lixiang Education. But when comparing it to its historical volatility, TAL Education Group is 2.57 times less risky than Lixiang Education. It trades about 0.03 of its potential returns per unit of risk. Lixiang Education Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,500  in Lixiang Education Holding on October 3, 2024 and sell it today you would lose (4,992) from holding Lixiang Education Holding or give up 90.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

TAL Education Group  vs.  Lixiang Education Holding

TAL Education Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TAL Education Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Lixiang Education Holding

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lixiang Education Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, Lixiang Education demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TAL Education and Lixiang Education

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

The idea behind TAL Education Group and Lixiang Education Holding 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.