Correlation Between Ross Stores and New Oriental

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

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

Diversification Opportunities for Ross Stores and New Oriental

-0.19

Correlation Coefficient

Ross Stores  New Oriental

Good diversification

The 3 months correlation between Ross and New is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores 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 Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and New Oriental go up and down completely randomly.

Pair Corralation between Ross Stores and New Oriental

Assuming the 90 days trading horizon Ross Stores is expected to generate 1.3 times less return on investment than New Oriental. But when comparing it to its historical volatility, Ross Stores is 2.17 times less risky than New Oriental. It trades about 0.28 of its potential returns per unit of risk. New Oriental Education is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,144  in New Oriental Education on September 18, 2024 and sell it today you would earn a total of  272.00  from holding New Oriental Education or generate 12.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ross Stores  vs.  New Oriental Education

Ross Stores

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

New Oriental Education

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat 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 Ross Stores and New Oriental

The main advantage of trading using opposite Ross Stores and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.