Correlation Between Wingstop and Contagious Gaming

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

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

Diversification Opportunities for Wingstop and Contagious Gaming

-0.41

Correlation Coefficient

Wingstop  Contagious Gaming

Very good diversification

The 3 months correlation between Wingstop and Contagious is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and Contagious Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contagious Gaming 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 Contagious Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contagious Gaming has no effect on the direction of Wingstop i.e., Wingstop and Contagious Gaming go up and down completely randomly.

Pair Corralation between Wingstop and Contagious Gaming

Given the investment horizon of 90 days Wingstop is expected to generate 0.33 times more return on investment than Contagious Gaming. However, Wingstop is 3.0 times less risky than Contagious Gaming. It trades about 0.11 of its potential returns per unit of risk. Contagious Gaming is currently generating about -0.15 per unit of risk. If you would invest  34,631  in Wingstop on January 29, 2024 and sell it today you would earn a total of  3,625  from holding Wingstop or generate 10.47% return on investment over 90 days.

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

Wingstop  vs.  Contagious Gaming

Wingstop

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wingstop are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wingstop reported solid returns over the last few months and may actually be approaching a breakup point.

Contagious Gaming

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Contagious Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Wingstop and Contagious Gaming

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

The idea behind Wingstop and Contagious Gaming 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.