Correlation Between Inspired Entertainment and Churchill Downs

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

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

Diversification Opportunities for Inspired Entertainment and Churchill Downs

0.65

Correlation Coefficient

Inspired Entertainment  Churchill Downs

Poor diversification

The 3 months correlation between Inspired and Churchill is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Inspired Entertainment and Churchill Downs Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Churchill Downs and Inspired Entertainment 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 Inspired Entertainment are associated (or correlated) with Churchill Downs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Churchill Downs has no effect on the direction of Inspired Entertainment i.e., Inspired Entertainment and Churchill Downs go up and down completely randomly.

Pair Corralation between Inspired Entertainment and Churchill Downs

Given the investment horizon of 90 days Inspired Entertainment is expected to generate 1.2 times more return on investment than Churchill Downs. However, Inspired Entertainment is 1.2 times more volatile than Churchill Downs Incorporated. It trades about 0.01 of its potential returns per unit of risk. Churchill Downs Incorporated is currently generating about -0.06 per unit of risk. If you would invest  946.00  in Inspired Entertainment on October 20, 2024 and sell it today you would earn a total of  1.00  from holding Inspired Entertainment or generate 0.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Inspired Entertainment  vs.  Churchill Downs Incorporated

Inspired Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspired Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Inspired Entertainment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Churchill Downs

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Inspired Entertainment and Churchill Downs

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

The idea behind Inspired Entertainment and Churchill Downs Incorporated 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.