Can any of the company-specific risk be diversified away by investing in both Wendys and Inspired Entertainment 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 Wendys and Inspired Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and Inspired Entertainment, you can compare the effects of market volatilities on Wendys and Inspired Entertainment 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 Wendys with a short position of Inspired Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Inspired Entertainment.
Diversification Opportunities for Wendys and Inspired Entertainment
The 3 months correlation between Wendys and Inspired is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Inspired Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspired Entertainment and Wendys 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 The Wendys Co are associated (or correlated) with Inspired Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspired Entertainment has no effect on the direction of Wendys i.e., Wendys and Inspired Entertainment go up and down completely randomly.
Pair Corralation between Wendys and Inspired Entertainment
Considering the 90-day investment horizon The Wendys Co is expected to generate 0.58 times more return on investment than Inspired Entertainment. However, The Wendys Co is 1.72 times less risky than Inspired Entertainment. It trades about -0.08 of its potential returns per unit of risk. Inspired Entertainment is currently generating about -0.07 per unit of risk. If you would invest 1,818 in The Wendys Co on March 6, 2024 and sell it today you would lose (90.00) from holding The Wendys Co or give up 4.95% of portfolio value over 90 days.
Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Inspired Entertainment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Inspired Entertainment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.