Correlation Between Rea and Light Wonder

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

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

Diversification Opportunities for Rea and Light Wonder

-0.01

Correlation Coefficient

Rea  Light Wonder

Good diversification

The 3 months correlation between Rea and Light is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Light Wonder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light Wonder and Rea 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 Rea Group are associated (or correlated) with Light Wonder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light Wonder has no effect on the direction of Rea i.e., Rea and Light Wonder go up and down completely randomly.

Pair Corralation between Rea and Light Wonder

Assuming the 90 days trading horizon Rea Group is expected to generate 0.44 times more return on investment than Light Wonder. However, Rea Group is 2.28 times less risky than Light Wonder. It trades about 0.19 of its potential returns per unit of risk. Light Wonder is currently generating about -0.05 per unit of risk. If you would invest  19,970  in Rea Group on September 13, 2024 and sell it today you would earn a total of  3,721  from holding Rea Group or generate 18.63% return on investment over 90 days.

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

Rea Group  vs.  Light Wonder

Rea Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rea unveiled solid returns over the last few months and may actually be approaching a breakup point.

Light Wonder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Light Wonder has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Rea and Light Wonder

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

The idea behind Rea Group and Light Wonder 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.