Correlation Between FSA and Light Wonder

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

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

Diversification Opportunities for FSA and Light Wonder

0.02

Correlation Coefficient

FSA  Light Wonder

Significant diversification

The 3 months correlation between FSA and Light is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding FSA Group and Light Wonder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light Wonder and FSA 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 FSA Group 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 FSA i.e., FSA and Light Wonder go up and down completely randomly.

Pair Corralation between FSA and Light Wonder

Assuming the 90 days trading horizon FSA Group is expected to under-perform the Light Wonder. But the stock apears to be less risky and, when comparing its historical volatility, FSA Group is 1.96 times less risky than Light Wonder. The stock trades about -0.06 of its potential returns per unit of risk. The Light Wonder is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  14,209  in Light Wonder on October 15, 2024 and sell it today you would lose (478.00) from holding Light Wonder or give up 3.36% of portfolio value over 90 days.

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

FSA Group  vs.  Light Wonder

FSA Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Light Wonder

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with FSA and Light Wonder

The main advantage of trading using opposite FSA and Light Wonder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FSA 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 FSA Group 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.