Correlation Between TAL Education and MHP Hotel

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

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

Diversification Opportunities for TAL Education and MHP Hotel

0.02

Correlation Coefficient

TAL Education  MHP Hotel

Significant diversification

The 3 months correlation between TAL and MHP is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding TAL Education Group and MHP Hotel AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MHP Hotel AG and TAL 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 TAL Education Group are associated (or correlated) with MHP Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MHP Hotel AG has no effect on the direction of TAL Education i.e., TAL Education and MHP Hotel go up and down completely randomly.

Pair Corralation between TAL Education and MHP Hotel

Assuming the 90 days trading horizon TAL Education Group is expected to generate 1.8 times more return on investment than MHP Hotel. However, TAL Education is 1.8 times more volatile than MHP Hotel AG. It trades about 0.01 of its potential returns per unit of risk. MHP Hotel AG is currently generating about 0.01 per unit of risk. If you would invest  1,090  in TAL Education Group on September 6, 2024 and sell it today you would lose (115.00) from holding TAL Education Group or give up 10.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

TAL Education Group  vs.  MHP Hotel AG

TAL Education Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TAL Education unveiled solid returns over the last few months and may actually be approaching a breakup point.

MHP Hotel AG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MHP Hotel AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, MHP Hotel is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TAL Education and MHP Hotel

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

The idea behind TAL Education Group and MHP Hotel AG 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.