Correlation Between Naked Wines and Primo Brands

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

Diversification Opportunities for Naked Wines and Primo Brands

0.26

Correlation Coefficient

Naked Wines  Primo Brands

Modest diversification

The 3 months correlation between Naked and Primo is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Primo Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primo Brands 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 Primo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primo Brands has no effect on the direction of Naked Wines i.e., Naked Wines and Primo Brands go up and down completely randomly.

Pair Corralation between Naked Wines and Primo Brands

Assuming the 90 days horizon Naked Wines is expected to generate 16.46 times less return on investment than Primo Brands. But when comparing it to its historical volatility, Naked Wines plc is 1.72 times less risky than Primo Brands. It trades about 0.02 of its potential returns per unit of risk. Primo Brands is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,438  in Primo Brands on September 30, 2024 and sell it today you would earn a total of  677.00  from holding Primo Brands or generate 27.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.97%
Values	Daily Returns

Naked Wines plc  vs.  Primo Brands

Naked Wines plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Naked Wines plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Primo Brands

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Primo Brands are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating primary indicators, Primo Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Primo Brands

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

The idea behind Naked Wines plc and Primo Brands 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.