Correlation Between Churchill Downs and Light Wonder

Can any of the company-specific risk be diversified away by investing in both Churchill Downs and Light Wonder 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 Churchill Downs and Light Wonder into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Churchill Downs Incorporated and Light Wonder, you can compare the effects of market volatilities on Churchill Downs and Light Wonder 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 Churchill Downs with a short position of Light Wonder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Churchill Downs and Light Wonder.

Diversification Opportunities for Churchill Downs and Light Wonder

-0.86

Correlation Coefficient

Churchill Downs  Light Wonder

Pay attention - limited upside

The 3 months correlation between Churchill and Light is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Churchill Downs Incorporated and Light Wonder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light Wonder and Churchill Downs 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 Churchill Downs Incorporated are associated (or correlated) with Light Wonder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light Wonder has no effect on the direction of Churchill Downs i.e., Churchill Downs and Light Wonder go up and down completely randomly.

Pair Corralation between Churchill Downs and Light Wonder

Given the investment horizon of 90 days Churchill Downs Incorporated is expected to under-perform the Light Wonder. But the stock apears to be less risky and, when comparing its historical volatility, Churchill Downs Incorporated is 1.96 times less risky than Light Wonder. The stock trades about -0.23 of its potential returns per unit of risk. The Light Wonder is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,522  in Light Wonder on December 29, 2024 and sell it today you would earn a total of  1,414  from holding Light Wonder or generate 16.59% return on investment over 90 days.

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

Churchill Downs Incorporated  vs.  Light Wonder

Churchill Downs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Churchill Downs Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Light Wonder

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Light Wonder are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Light Wonder showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Churchill Downs and Light Wonder

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

The idea behind Churchill Downs Incorporated and Light Wonder 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.