Correlation Between Wingstop and LuxUrban Hotels

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

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

Diversification Opportunities for Wingstop and LuxUrban Hotels

0.8

Correlation Coefficient

Wingstop  LuxUrban Hotels

Very poor diversification

The 3 months correlation between Wingstop and LuxUrban is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and LuxUrban Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LuxUrban Hotels 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 LuxUrban Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LuxUrban Hotels has no effect on the direction of Wingstop i.e., Wingstop and LuxUrban Hotels go up and down completely randomly.

Pair Corralation between Wingstop and LuxUrban Hotels

Given the investment horizon of 90 days Wingstop is expected to generate 0.3 times more return on investment than LuxUrban Hotels. However, Wingstop is 3.31 times less risky than LuxUrban Hotels. It trades about 0.07 of its potential returns per unit of risk. LuxUrban Hotels is currently generating about -0.08 per unit of risk. If you would invest  14,705  in Wingstop on October 7, 2024 and sell it today you would earn a total of  15,096  from holding Wingstop or generate 102.66% return on investment over 90 days.

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

Wingstop  vs.  LuxUrban Hotels

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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LuxUrban Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LuxUrban Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Wingstop and LuxUrban Hotels

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

The idea behind Wingstop and LuxUrban Hotels 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.