Correlation Between Crimson Wine and Naked Wines

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

By analyzing existing cross correlation between Crimson Wine and Naked Wines plc, you can compare the effects of market volatilities on Crimson Wine and Naked Wines 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 Crimson Wine with a short position of Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crimson Wine and Naked Wines.

Diversification Opportunities for Crimson Wine and Naked Wines

0.21

Correlation Coefficient

Crimson Wine  Naked Wines

Modest diversification

The 3 months correlation between Crimson and Naked is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Crimson Wine and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines plc and Crimson Wine 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 Crimson Wine are associated (or correlated) with Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of Crimson Wine i.e., Crimson Wine and Naked Wines go up and down completely randomly.

Pair Corralation between Crimson Wine and Naked Wines

Given the investment horizon of 90 days Crimson Wine is expected to generate 1.65 times less return on investment than Naked Wines. But when comparing it to its historical volatility, Crimson Wine is 2.68 times less risky than Naked Wines. It trades about 0.07 of its potential returns per unit of risk. Naked Wines plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  66.00  in Naked Wines plc on August 30, 2024 and sell it today you would earn a total of  4.00  from holding Naked Wines plc or generate 6.06% return on investment over 90 days.

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

Crimson Wine  vs.  Naked Wines plc

Crimson Wine

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Crimson Wine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Crimson Wine may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Naked Wines plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naked Wines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Crimson Wine and Naked Wines

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

The idea behind Crimson Wine and Naked Wines plc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.