Correlation Between Arena and Youdao Inc

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Can any of the company-specific risk be diversified away by investing in both Arena and Youdao Inc 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 Arena and Youdao Inc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Arena Group and Youdao Inc ADR, you can compare the effects of market volatilities on Arena and Youdao Inc 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 Arena with a short position of Youdao Inc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arena and Youdao Inc.

Diversification Opportunities for Arena and Youdao Inc

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between Arena and Youdao is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding The Arena Group and Youdao Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youdao Inc ADR and Arena 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 The Arena Group are associated (or correlated) with Youdao Inc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youdao Inc ADR has no effect on the direction of Arena i.e., Arena and Youdao Inc go up and down completely randomly.

Pair Corralation between Arena and Youdao Inc

Given the investment horizon of 90 days Arena is expected to generate 1.85 times less return on investment than Youdao Inc. But when comparing it to its historical volatility, The Arena Group is 1.36 times less risky than Youdao Inc. It trades about 0.12 of its potential returns per unit of risk. Youdao Inc ADR is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  435.00  in Youdao Inc ADR on May 13, 2022 and sell it today you would earn a total of  74.00  from holding Youdao Inc ADR or generate 17.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

The Arena Group  vs.  Youdao Inc ADR

 Performance (%) 
       Timeline  
Arena Group 
Arena Performance
0 of 100
Over the last 90 days The Arena Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Arena is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Arena Price Channel

Youdao Inc ADR 
Youdao Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Youdao Inc ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Youdao Inc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Youdao Price Channel

Arena and Youdao Inc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arena and Youdao Inc

The main advantage of trading using opposite Arena and Youdao Inc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arena position performs unexpectedly, Youdao Inc 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 Youdao Inc will offset losses from the drop in Youdao Inc's long position.
The idea behind The Arena Group and Youdao Inc ADR 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.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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