Correlation Between Light Wonder and Good Gaming

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

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

Diversification Opportunities for Light Wonder and Good Gaming

0.35

Correlation Coefficient

Light Wonder  Good Gaming

Weak diversification

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

Pair Corralation between Light Wonder and Good Gaming

Considering the 90-day investment horizon Light Wonder is expected to generate 2.74 times less return on investment than Good Gaming. But when comparing it to its historical volatility, Light Wonder is 3.87 times less risky than Good Gaming. It trades about 0.15 of its potential returns per unit of risk. Good Gaming is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.91  in Good Gaming on December 27, 2024 and sell it today you would earn a total of  0.39  from holding Good Gaming or generate 42.86% return on investment over 90 days.

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

Light Wonder  vs.  Good Gaming

Light Wonder

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Light Wonder are ranked lower than 11 (%) 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.

Good Gaming

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Good Gaming are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, Good Gaming reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Light Wonder and Good Gaming

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

The idea behind Light Wonder and Good Gaming 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.