Correlation Between New Oriental and PayPal Holdings
Can any of the company-specific risk be diversified away by investing in both New Oriental and PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings, you can compare the effects of market volatilities on New Oriental and PayPal Holdings 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 PayPal Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Oriental and PayPal Holdings.
Diversification Opportunities for New Oriental and PayPal Holdings
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between New and PayPal is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and PayPal Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PayPal Holdings 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 PayPal Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PayPal Holdings has no effect on the direction of New Oriental i.e., New Oriental and PayPal Holdings go up and down completely randomly.
Pair Corralation between New Oriental and PayPal Holdings
Assuming the 90 days trading horizon New Oriental Education is expected to generate 1.45 times more return on investment than PayPal Holdings. However, New Oriental is 1.45 times more volatile than PayPal Holdings. It trades about 0.06 of its potential returns per unit of risk. PayPal Holdings is currently generating about 0.04 per unit of risk. If you would invest 1,166 in New Oriental Education on September 5, 2024 and sell it today you would earn a total of 1,409 from holding New Oriental Education or generate 120.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
New Oriental Education vs. PayPal Holdings
Performance |
| Timeline |
| New Oriental Education |
| PayPal Holdings |
New Oriental and PayPal Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Oriental and PayPal Holdings
The main advantage of trading using opposite New Oriental and PayPal Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Oriental position performs unexpectedly, PayPal Holdings 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 PayPal Holdings will offset losses from the drop in PayPal Holdings' long position.The idea behind New Oriental Education and PayPal Holdings 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.| PayPal Holdings vs. Ameriprise Financial | PayPal Holdings vs. Apartment Investment and | PayPal Holdings vs. New Oriental Education | PayPal Holdings vs. Bread Financial Holdings |
Check out your portfolio center.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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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