Correlation Between Naked Wines and Diageo Plc

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

Diversification Opportunities for Naked Wines and Diageo Plc

-0.54

Correlation Coefficient

Naked Wines  Diageo Plc

Excellent diversification

The 3 months correlation between Naked and Diageo is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc 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 Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Naked Wines i.e., Naked Wines and Diageo Plc go up and down completely randomly.

Pair Corralation between Naked Wines and Diageo Plc

Assuming the 90 days horizon Naked Wines plc is expected to generate 0.62 times more return on investment than Diageo Plc. However, Naked Wines plc is 1.61 times less risky than Diageo Plc. It trades about -0.05 of its potential returns per unit of risk. Diageo plc is currently generating about -0.06 per unit of risk. If you would invest  286.00  in Naked Wines plc on September 3, 2024 and sell it today you would lose (15.00) from holding Naked Wines plc or give up 5.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Naked Wines plc  vs.  Diageo plc

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.

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Naked Wines and Diageo Plc

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

The idea behind Naked Wines plc and Diageo 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.