Correlation Between Light Wonder and Rave Restaurant

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

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

Diversification Opportunities for Light Wonder and Rave Restaurant

0.3

Correlation Coefficient

Light Wonder  Rave Restaurant

Weak diversification

The 3 months correlation between Light and Rave is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Light Wonder and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Light Wonder i.e., Light Wonder and Rave Restaurant go up and down completely randomly.

Pair Corralation between Light Wonder and Rave Restaurant

Considering the 90-day investment horizon Light Wonder is expected to generate 0.8 times more return on investment than Rave Restaurant. However, Light Wonder is 1.25 times less risky than Rave Restaurant. It trades about 0.1 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about -0.03 per unit of risk. If you would invest  9,806  in Light Wonder on December 1, 2024 and sell it today you would earn a total of  1,342  from holding Light Wonder or generate 13.69% 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.  Rave Restaurant Group

Light Wonder

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Light Wonder are ranked lower than 7 (%) 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.

Rave Restaurant Group

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Light Wonder and Rave Restaurant

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

The idea behind Light Wonder and Rave Restaurant Group 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.