Correlation Between Light Wonder and Playtech PLC

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

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

Diversification Opportunities for Light Wonder and Playtech PLC

0.7

Correlation Coefficient

Light Wonder  Playtech PLC

Poor diversification

The 3 months correlation between Light and Playtech is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Light Wonder and Playtech PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playtech PLC ADR 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 Playtech PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playtech PLC ADR has no effect on the direction of Light Wonder i.e., Light Wonder and Playtech PLC go up and down completely randomly.

Pair Corralation between Light Wonder and Playtech PLC

Considering the 90-day investment horizon Light Wonder is expected to generate 3.88 times more return on investment than Playtech PLC. However, Light Wonder is 3.88 times more volatile than Playtech PLC ADR. It trades about 0.11 of its potential returns per unit of risk. Playtech PLC ADR is currently generating about 0.13 per unit of risk. 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 Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Light Wonder  vs.  Playtech PLC ADR

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.

Playtech PLC ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Playtech PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Playtech PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Light Wonder and Playtech PLC

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

The idea behind Light Wonder and Playtech PLC ADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.