Correlation Between Guangdong Investment and Bright Scholar

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

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

Diversification Opportunities for Guangdong Investment and Bright Scholar

0.41

Correlation Coefficient

Guangdong Investment  Bright Scholar

Very weak diversification

The 3 months correlation between Guangdong and Bright is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment Limited 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 Guangdong Investment 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 Guangdong Investment Limited 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 Guangdong Investment i.e., Guangdong Investment and Bright Scholar go up and down completely randomly.

Pair Corralation between Guangdong Investment and Bright Scholar

Assuming the 90 days horizon Guangdong Investment Limited is expected to generate 2.8 times more return on investment than Bright Scholar. However, Guangdong Investment is 2.8 times more volatile than Bright Scholar Education. It trades about 0.22 of its potential returns per unit of risk. Bright Scholar Education is currently generating about 0.05 per unit of risk. If you would invest  61.00  in Guangdong Investment Limited on September 16, 2024 and sell it today you would earn a total of  22.00  from holding Guangdong Investment Limited or generate 36.07% return on investment over 90 days.

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

Guangdong Investment Limited  vs.  Bright Scholar Education

Guangdong Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangdong Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Bright Scholar Education

Risk-Adjusted Performance

2 of 100

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 January 2025.

Pair Trading with Guangdong Investment and Bright Scholar

The main advantage of trading using opposite Guangdong Investment and Bright Scholar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Investment 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 Guangdong Investment Limited 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.