Can any of the company-specific risk be diversified away by investing in both Elite Education and Sunlands Technology 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 Elite Education and Sunlands Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elite Education Group and Sunlands Technology Group, you can compare the effects of market volatilities on Elite Education and Sunlands Technology 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 Elite Education with a short position of Sunlands Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Education and Sunlands Technology.
Diversification Opportunities for Elite Education and Sunlands Technology
The 3 months correlation between Elite and Sunlands is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Elite Education Group and Sunlands Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunlands Technology and Elite Education 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 Elite Education Group are associated (or correlated) with Sunlands Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunlands Technology has no effect on the direction of Elite Education i.e., Elite Education and Sunlands Technology go up and down completely randomly.
Pair Corralation between Elite Education and Sunlands Technology
Given the investment horizon of 90 days Elite Education Group is expected to generate 1.93 times more return on investment than Sunlands Technology. However, Elite Education is 1.93 times more volatile than Sunlands Technology Group. It trades about -0.01 of its potential returns per unit of risk. Sunlands Technology Group is currently generating about -0.19 per unit of risk. If you would invest 110.00 in Elite Education Group on March 6, 2024 and sell it today you would lose (18.00) from holding Elite Education Group or give up 16.36% of portfolio value over 90 days.
Over the last 90 days Elite Education Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Elite Education is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.
Over the last 90 days Sunlands Technology Group 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 July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.