Correlation Between Vale SA and New Oriental

Can any of the company-specific risk be diversified away by investing in both Vale SA and New Oriental 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 Vale SA and New Oriental into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Vale SA and New Oriental

0.35

Correlation Coefficient

Vale SA  New Oriental

Weak diversification

The 3 months correlation between Vale and New is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education and Vale SA 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 Vale SA are associated (or correlated) with New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Vale SA i.e., Vale SA and New Oriental go up and down completely randomly.

Pair Corralation between Vale SA and New Oriental

Assuming the 90 days trading horizon Vale SA is expected to generate 6.68 times more return on investment than New Oriental. However, Vale SA is 6.68 times more volatile than New Oriental Education. It trades about 0.09 of its potential returns per unit of risk. New Oriental Education is currently generating about -0.23 per unit of risk. If you would invest  18,200  in Vale SA on October 23, 2024 and sell it today you would earn a total of  450.00  from holding Vale SA or generate 2.47% return on investment over 90 days.

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

Vale SA  vs.  New Oriental Education

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

New Oriental Education

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, New Oriental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vale SA and New Oriental

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

The idea behind Vale SA and New Oriental Education 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.