Correlation Between Bright Scholar and Gaotu Techedu

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

By analyzing existing cross correlation between Bright Scholar Education and Gaotu Techedu DRC, you can compare the effects of market volatilities on Bright Scholar and Gaotu Techedu 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 Bright Scholar with a short position of Gaotu Techedu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bright Scholar and Gaotu Techedu.

Diversification Opportunities for Bright Scholar and Gaotu Techedu

0.51

Correlation Coefficient

Bright Scholar  Gaotu Techedu

Very weak diversification

The 3 months correlation between Bright and Gaotu is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Bright Scholar Education and Gaotu Techedu DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaotu Techedu DRC and Bright Scholar 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 Bright Scholar Education are associated (or correlated) with Gaotu Techedu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaotu Techedu DRC has no effect on the direction of Bright Scholar i.e., Bright Scholar and Gaotu Techedu go up and down completely randomly.

Pair Corralation between Bright Scholar and Gaotu Techedu

Given the investment horizon of 90 days Bright Scholar Education is expected to generate 0.58 times more return on investment than Gaotu Techedu. However, Bright Scholar Education is 1.73 times less risky than Gaotu Techedu. It trades about 0.1 of its potential returns per unit of risk. Gaotu Techedu DRC is currently generating about -0.03 per unit of risk. If you would invest  195.00  in Bright Scholar Education on September 18, 2024 and sell it today you would earn a total of  10.08  from holding Bright Scholar Education or generate 5.17% return on investment over 90 days.

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

Bright Scholar Education  vs.  Gaotu Techedu DRC

Bright Scholar Education

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Scholar Education are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Bright Scholar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gaotu Techedu DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gaotu Techedu DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gaotu Techedu is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bright Scholar and Gaotu Techedu

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

The idea behind Bright Scholar Education and Gaotu Techedu DRC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.