Correlation Between Light Wonder and Dave Busters

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

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

Diversification Opportunities for Light Wonder and Dave Busters

-0.4

Correlation Coefficient

Light Wonder  Dave Busters

Very good diversification

The 3 months correlation between Light and Dave is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Light Wonder and Dave Busters Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Busters Enterta and Light Wonder 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 Light Wonder are associated (or correlated) with Dave Busters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Busters Enterta has no effect on the direction of Light Wonder i.e., Light Wonder and Dave Busters go up and down completely randomly.

Pair Corralation between Light Wonder and Dave Busters

Considering the 90-day investment horizon Light Wonder is expected to under-perform the Dave Busters. But the stock apears to be less risky and, when comparing its historical volatility, Light Wonder is 1.1 times less risky than Dave Busters. The stock trades about -0.03 of its potential returns per unit of risk. The Dave Busters Entertainment is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,015  in Dave Busters Entertainment on September 4, 2024 and sell it today you would earn a total of  885.00  from holding Dave Busters Entertainment or generate 29.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Light Wonder  vs.  Dave Busters Entertainment

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 fairly stable basic indicators, Light Wonder is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Dave Busters Enterta

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Busters Entertainment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Dave Busters showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Light Wonder and Dave Busters

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

The idea behind Light Wonder and Dave Busters Entertainment 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.