Correlation Between Bright Scholar and Japan Tobacco

Can any of the company-specific risk be diversified away by investing in both Bright Scholar and Japan Tobacco 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 Japan Tobacco 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 Japan Tobacco ADR, you can compare the effects of market volatilities on Bright Scholar and Japan Tobacco 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 Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bright Scholar and Japan Tobacco.

Diversification Opportunities for Bright Scholar and Japan Tobacco

0.59

Correlation Coefficient

Bright Scholar  Japan Tobacco

Very weak diversification

The 3 months correlation between Bright and Japan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bright Scholar Education and Japan Tobacco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco ADR 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 Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco ADR has no effect on the direction of Bright Scholar i.e., Bright Scholar and Japan Tobacco go up and down completely randomly.

Pair Corralation between Bright Scholar and Japan Tobacco

Given the investment horizon of 90 days Bright Scholar Education is expected to generate 5.99 times more return on investment than Japan Tobacco. However, Bright Scholar is 5.99 times more volatile than Japan Tobacco ADR. It trades about -0.05 of its potential returns per unit of risk. Japan Tobacco ADR is currently generating about -0.48 per unit of risk. If you would invest  190.00  in Bright Scholar Education on October 12, 2024 and sell it today you would lose (20.00) from holding Bright Scholar Education or give up 10.53% of portfolio value over 90 days.

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

Bright Scholar Education  vs.  Japan Tobacco ADR

Bright Scholar Education

Risk-Adjusted Performance

0 of 100

Very Weak

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

Japan Tobacco ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bright Scholar and Japan Tobacco

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

The idea behind Bright Scholar Education and Japan Tobacco 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.