Correlation Between Naked Wines and Vodka Brands

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

Diversification Opportunities for Naked Wines and Vodka Brands

0.25

Correlation Coefficient

Naked Wines  Vodka Brands

Modest diversification

The 3 months correlation between Naked and Vodka is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Vodka Brands Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodka Brands 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 Vodka Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodka Brands Corp has no effect on the direction of Naked Wines i.e., Naked Wines and Vodka Brands go up and down completely randomly.

Pair Corralation between Naked Wines and Vodka Brands

Assuming the 90 days horizon Naked Wines is expected to generate 20.62 times less return on investment than Vodka Brands. But when comparing it to its historical volatility, Naked Wines plc is 2.83 times less risky than Vodka Brands. It trades about 0.01 of its potential returns per unit of risk. Vodka Brands Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  105.00  in Vodka Brands Corp on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Vodka Brands Corp or generate 6.67% return on investment over 90 days.

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

Naked Wines plc  vs.  Vodka Brands 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.

Vodka Brands Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vodka Brands Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward-looking signals, Vodka Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Naked Wines and Vodka Brands

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

The idea behind Naked Wines plc and Vodka Brands 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.