Correlation Between Naked Wines and Cebu Air

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

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

Diversification Opportunities for Naked Wines and Cebu Air

-0.69

Correlation Coefficient

Naked Wines  Cebu Air

Excellent diversification

The 3 months correlation between Naked and Cebu is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Cebu Air ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air ADR and Naked Wines 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 Naked Wines plc are associated (or correlated) with Cebu Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cebu Air ADR has no effect on the direction of Naked Wines i.e., Naked Wines and Cebu Air go up and down completely randomly.

Pair Corralation between Naked Wines and Cebu Air

Assuming the 90 days horizon Naked Wines plc is expected to generate 0.83 times more return on investment than Cebu Air. However, Naked Wines plc is 1.21 times less risky than Cebu Air. It trades about -0.05 of its potential returns per unit of risk. Cebu Air ADR is currently generating about -0.12 per unit of risk. If you would invest  270.00  in Naked Wines plc on September 25, 2024 and sell it today you would lose (15.00) from holding Naked Wines plc or give up 5.56% of portfolio value over 90 days.

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

Naked Wines plc  vs.  Cebu Air ADR

Naked Wines plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Naked Wines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cebu Air ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Naked Wines and Cebu Air

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

The idea behind Naked Wines plc and Cebu Air ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.