Correlation Between New Oriental and American Public

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

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

Diversification Opportunities for New Oriental and American Public

-0.43

Correlation Coefficient

New Oriental  American Public

Very good diversification

The 3 months correlation between New and American is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and American Public Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Public Education and New Oriental 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 New Oriental Education are associated (or correlated) with American Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Public Education has no effect on the direction of New Oriental i.e., New Oriental and American Public go up and down completely randomly.

Pair Corralation between New Oriental and American Public

Considering the 90-day investment horizon New Oriental Education is expected to generate 0.82 times more return on investment than American Public. However, New Oriental Education is 1.22 times less risky than American Public. It trades about 0.11 of its potential returns per unit of risk. American Public Education is currently generating about 0.04 per unit of risk. If you would invest  1,200  in New Oriental Education on February 12, 2024 and sell it today you would earn a total of  7,217  from holding New Oriental Education or generate 601.42% return on investment over 90 days.

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

New Oriental Education  vs.  American Public Education

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, New Oriental is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

American Public Education

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Oriental and American Public

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

The idea behind New Oriental Education and American Public 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.