Correlation Between Naked Wines and Dennys Corp

Can any of the company-specific risk be diversified away by investing in both Naked Wines and Dennys Corp 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 Dennys Corp 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 Dennys Corp, you can compare the effects of market volatilities on Naked Wines and Dennys Corp 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 Dennys Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naked Wines and Dennys Corp.

Diversification Opportunities for Naked Wines and Dennys Corp

0.3

Correlation Coefficient

Naked Wines  Dennys Corp

Weak diversification

The 3 months correlation between Naked and Dennys is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Dennys Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dennys Corp 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 Dennys Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dennys Corp has no effect on the direction of Naked Wines i.e., Naked Wines and Dennys Corp go up and down completely randomly.

Pair Corralation between Naked Wines and Dennys Corp

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the Dennys Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 2.7 times less risky than Dennys Corp. The pink sheet trades about -0.23 of its potential returns per unit of risk. The Dennys Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  627.00  in Dennys Corp on September 21, 2024 and sell it today you would lose (40.00) from holding Dennys Corp or give up 6.38% of portfolio value over 90 days.

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

Naked Wines plc  vs.  Dennys Corp

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.

Dennys Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dennys Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dennys Corp is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Naked Wines and Dennys Corp

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

The idea behind Naked Wines plc and Dennys Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.