Correlation Between Bright Scholar and Stepan

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

Diversification Opportunities for Bright Scholar and Stepan

0.49

Correlation Coefficient

Bright Scholar  Stepan

Very weak diversification

The 3 months correlation between Bright and Stepan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bright Scholar Education and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Bright Scholar i.e., Bright Scholar and Stepan go up and down completely randomly.

Pair Corralation between Bright Scholar and Stepan

Given the investment horizon of 90 days Bright Scholar Education is expected to generate 2.98 times more return on investment than Stepan. However, Bright Scholar is 2.98 times more volatile than Stepan Company. It trades about 0.03 of its potential returns per unit of risk. Stepan Company is currently generating about -0.13 per unit of risk. If you would invest  174.00  in Bright Scholar Education on December 25, 2024 and sell it today you would earn a total of  3.00  from holding Bright Scholar Education or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Bright Scholar Education  vs.  Stepan Company

Bright Scholar Education

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Scholar Education are ranked lower than 2 (%) 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 April 2025.

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company 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 fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bright Scholar and Stepan

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

The idea behind Bright Scholar Education and Stepan Company 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.