Correlation Between Udemy and Sunlands Technology

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

By analyzing existing cross correlation between Udemy Inc and Sunlands Technology Group, you can compare the effects of market volatilities on Udemy 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 Udemy with a short position of Sunlands Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Udemy and Sunlands Technology.

Diversification Opportunities for Udemy and Sunlands Technology

-0.1

Correlation Coefficient

Udemy  Sunlands Technology

Good diversification

The 3 months correlation between Udemy and Sunlands is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Udemy Inc and Sunlands Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunlands Technology and Udemy 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 Udemy Inc 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 Udemy i.e., Udemy and Sunlands Technology go up and down completely randomly.

Pair Corralation between Udemy and Sunlands Technology

Given the investment horizon of 90 days Udemy Inc is expected to generate 0.49 times more return on investment than Sunlands Technology. However, Udemy Inc is 2.06 times less risky than Sunlands Technology. It trades about -0.23 of its potential returns per unit of risk. Sunlands Technology Group is currently generating about -0.29 per unit of risk. If you would invest  1,098  in Udemy Inc on January 28, 2024 and sell it today you would lose (80.00) from holding Udemy Inc or give up 7.29% of portfolio value over 90 days.

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

Udemy Inc  vs.  Sunlands Technology Group

Udemy Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Udemy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Sunlands Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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 May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Udemy and Sunlands Technology

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

The idea behind Udemy Inc and Sunlands Technology Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.