Correlation Between Light Wonder and Inspired Entertainment

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

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

Diversification Opportunities for Light Wonder and Inspired Entertainment

0.75

Correlation Coefficient

Light Wonder  Inspired Entertainment

Poor diversification

The 3 months correlation between Light and Inspired is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Light Wonder and Inspired Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspired Entertainment 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 Inspired Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspired Entertainment has no effect on the direction of Light Wonder i.e., Light Wonder and Inspired Entertainment go up and down completely randomly.

Pair Corralation between Light Wonder and Inspired Entertainment

Considering the 90-day investment horizon Light Wonder is expected to generate 1.02 times less return on investment than Inspired Entertainment. In addition to that, Light Wonder is 1.4 times more volatile than Inspired Entertainment. It trades about 0.24 of its total potential returns per unit of risk. Inspired Entertainment is currently generating about 0.34 per unit of volatility. If you would invest  945.00  in Inspired Entertainment on November 28, 2024 and sell it today you would earn a total of  164.00  from holding Inspired Entertainment or generate 17.35% return on investment over 90 days.

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

Light Wonder  vs.  Inspired Entertainment

Light Wonder

Risk-Adjusted Performance

Insignificant

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.

Inspired Entertainment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inspired Entertainment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Inspired Entertainment exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Light Wonder and Inspired Entertainment

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

The idea behind Light Wonder and Inspired Entertainment 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.