Correlation Between Duolingo and IDP Education

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

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

Diversification Opportunities for Duolingo and IDP Education

-0.79

Correlation Coefficient

Duolingo  IDP Education

Pay attention - limited upside

The 3 months correlation between Duolingo and IDP is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Duolingo and IDP Education Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDP Education Limited and Duolingo 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 Duolingo are associated (or correlated) with IDP Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDP Education Limited has no effect on the direction of Duolingo i.e., Duolingo and IDP Education go up and down completely randomly.

Pair Corralation between Duolingo and IDP Education

Given the investment horizon of 90 days Duolingo is expected to generate 0.9 times more return on investment than IDP Education. However, Duolingo is 1.11 times less risky than IDP Education. It trades about 0.26 of its potential returns per unit of risk. IDP Education Limited is currently generating about -0.13 per unit of risk. If you would invest  23,400  in Duolingo on September 14, 2024 and sell it today you would earn a total of  10,552  from holding Duolingo or generate 45.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Duolingo  vs.  IDP Education Limited

Duolingo

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Duolingo are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Duolingo disclosed solid returns over the last few months and may actually be approaching a breakup point.

IDP Education Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDP Education Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Duolingo and IDP Education

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

The idea behind Duolingo and IDP Education Limited 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 Anywhere module to track or share privately all of your investments from the convenience of any device.