Correlation Between Naked Wines and Fresh Grapes

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

Diversification Opportunities for Naked Wines and Fresh Grapes

-0.78

Correlation Coefficient

Naked Wines  Fresh Grapes

Pay attention - limited upside

The 3 months correlation between Naked and Fresh is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and Fresh Grapes LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fresh Grapes LLC 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 Fresh Grapes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fresh Grapes LLC has no effect on the direction of Naked Wines i.e., Naked Wines and Fresh Grapes go up and down completely randomly.

Pair Corralation between Naked Wines and Fresh Grapes

Assuming the 90 days horizon Naked Wines plc is expected to under-perform the Fresh Grapes. But the pink sheet apears to be less risky and, when comparing its historical volatility, Naked Wines plc is 7.09 times less risky than Fresh Grapes. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Fresh Grapes LLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Fresh Grapes LLC on September 3, 2024 and sell it today you would earn a total of  35.00  from holding Fresh Grapes LLC or generate 102.94% return on investment over 90 days.

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

Naked Wines plc  vs.  Fresh Grapes LLC

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.

Fresh Grapes LLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fresh Grapes LLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Fresh Grapes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naked Wines and Fresh Grapes

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

The idea behind Naked Wines plc and Fresh Grapes LLC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..