Correlation Between LB Foster and Bright Scholar

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

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

Diversification Opportunities for LB Foster and Bright Scholar

0.35

Correlation Coefficient

LB Foster  Bright Scholar

Weak diversification

The 3 months correlation between FSTR and Bright is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Bright Scholar Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Scholar Education and LB Foster 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 LB Foster are associated (or correlated) with Bright Scholar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Scholar Education has no effect on the direction of LB Foster i.e., LB Foster and Bright Scholar go up and down completely randomly.

Pair Corralation between LB Foster and Bright Scholar

Given the investment horizon of 90 days LB Foster is expected to under-perform the Bright Scholar. But the stock apears to be less risky and, when comparing its historical volatility, LB Foster is 1.93 times less risky than Bright Scholar. The stock trades about -0.14 of its potential returns per unit of risk. The Bright Scholar Education is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  174.00  in Bright Scholar Education on December 25, 2024 and sell it today you would earn a total of  1.00  from holding Bright Scholar Education or generate 0.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

LB Foster  vs.  Bright Scholar Education

LB Foster

Risk-Adjusted Performance

Very Weak

Over the last 90 days LB Foster has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Bright Scholar Education

Risk-Adjusted Performance

Insignificant

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.

Pair Trading with LB Foster and Bright Scholar

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

The idea behind LB Foster and Bright Scholar Education 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.