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
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Rea and Light is 0.49. 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 under-perform the Light Wonder. But the stock apears to be less risky and, when comparing its historical volatility, Rea Group is 1.28 times less risky than Light Wonder. The stock trades about -0.03 of its potential returns per unit of risk. The Light Wonder is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 14,562 in Light Wonder on October 18, 2024 and sell it today you would lose (247.00) from holding Light Wonder or give up 1.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rea Group vs. Light Wonder
Performance |
| Timeline |
| Rea Group |
| Light Wonder |
Rea and Light Wonder Volatility Contrast
Predicted Return Density |
| Returns |
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.| Light Wonder vs. Lottery | Light Wonder vs. Pointsbet Holdings | Light Wonder vs. Bluebet Holdings | Light Wonder vs. Betmakers Technology Group |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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