Correlation Between American Public and New Oriental

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

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

Diversification Opportunities for American Public and New Oriental

-0.56

Correlation Coefficient

American Public  New Oriental

Excellent diversification

The 3 months correlation between American and New is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education 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 American Public 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 American Public Education 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 American Public i.e., American Public and New Oriental go up and down completely randomly.

Pair Corralation between American Public and New Oriental

Given the investment horizon of 90 days American Public Education is expected to generate 0.81 times more return on investment than New Oriental. However, American Public Education is 1.24 times less risky than New Oriental. It trades about 0.22 of its potential returns per unit of risk. New Oriental Education is currently generating about 0.04 per unit of risk. If you would invest  1,511  in American Public Education on September 12, 2024 and sell it today you would earn a total of  703.00  from holding American Public Education or generate 46.53% return on investment over 90 days.

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

American Public Education  vs.  New Oriental Education

American Public Education

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

New Oriental Education

Risk-Adjusted Performance

3 of 100

Weak

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 comparatively weak fundamental indicators, New Oriental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Public and New Oriental

The main advantage of trading using opposite American Public and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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 American Public Education 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.