Correlation Between Wingstop and DraftKings

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

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

Diversification Opportunities for Wingstop and DraftKings

-0.16

Correlation Coefficient

Wingstop  DraftKings

Good diversification

The 3 months correlation between Wingstop and DraftKings is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and DraftKings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DraftKings and Wingstop 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 Wingstop are associated (or correlated) with DraftKings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DraftKings has no effect on the direction of Wingstop i.e., Wingstop and DraftKings go up and down completely randomly.

Pair Corralation between Wingstop and DraftKings

Given the investment horizon of 90 days Wingstop is expected to under-perform the DraftKings. But the stock apears to be less risky and, when comparing its historical volatility, Wingstop is 1.02 times less risky than DraftKings. The stock trades about -0.29 of its potential returns per unit of risk. The DraftKings is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  4,306  in DraftKings on September 27, 2024 and sell it today you would lose (462.50) from holding DraftKings or give up 10.74% of portfolio value over 90 days.

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

Wingstop  vs.  DraftKings

Wingstop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

DraftKings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DraftKings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DraftKings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wingstop and DraftKings

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

The idea behind Wingstop and DraftKings 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.