Correlation Between Wingstop and Frontdoor

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

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

Diversification Opportunities for Wingstop and Frontdoor

0.19

Correlation Coefficient

Wingstop  Frontdoor

Average diversification

The 3 months correlation between Wingstop and Frontdoor is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor 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 Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Wingstop i.e., Wingstop and Frontdoor go up and down completely randomly.

Pair Corralation between Wingstop and Frontdoor

Given the investment horizon of 90 days Wingstop is expected to generate 1.17 times less return on investment than Frontdoor. In addition to that, Wingstop is 1.17 times more volatile than Frontdoor. It trades about 0.06 of its total potential returns per unit of risk. Frontdoor is currently generating about 0.09 per unit of volatility. If you would invest  2,797  in Frontdoor on November 20, 2024 and sell it today you would earn a total of  3,149  from holding Frontdoor or generate 112.58% return on investment over 90 days.

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

Wingstop  vs.  Frontdoor

Wingstop

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Frontdoor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Frontdoor may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Wingstop and Frontdoor

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

The idea behind Wingstop and Frontdoor 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.